UC-NRLF 


B    4    S7T   214 


L.IBRARV 

OF  THK 

University  of  California. 


GIFT    OF 


0.. 


Class 


Mr 


Why  Railroads  Need  Higher  Rates 


By  E.  "P.  RIPLEY. 

"PRESIDENT  OF  THE  JITCHISON,  TOPEKA  JlND  SANTA  FE 
'  TiAIL  WA  Y  COMPANY 


VERBATIM  TESTIMONY 

GIVEN  TO  INTERSTATE   COMMERCE  COMMISSION. 

CHICAGO,  AUGUST  29  AND  30,  1910.  IN  SUPPORT  OF  PROPOSED  ADVANCE 

IN  RATES  BETWEEN  CHICAGO  AND  ROCKY  MOUNTAINS. 

WITH  SOME  NEWSPAPER  COMMENT 


/lJt4V^ 


"THE  GREATEST  CONTEST  IN  RAILWAY  AMiALS" -Chicago  Record 
Herald.  August  30,  1910. 

"THE  CONSTRUCTION  EXPENDITURES  OF  AN  AMERICAN 
RAILROAD  WILL  NEVER  EUD"— Chicago  'iTribune.Seplember  1 .  1910. 
"THE  RAILROADS  ARE  NOT  AS  SAFE  AND  MODERN  AS  THEY 
SHOULD  BE,  AND  WITHOUT  MORE  INCOME  THE  DEMANDS 
FOR  TRACK  ELEVATION.  NEW  STATIONS,  MORE  COMFORT. 
GREATER  SAFETY,  CANNOT  BE  MET"-Ci(ccj?o  Record-Herald, 
August  31,  1910. 

"VAST  TRADE  IS  LOST  TO  THE  COUNTRY  BY  RAILROAD 
ECONOMY.  SANTA  FE  BUDGETS  SHORTENFJ)  BY  MILLIONS 
WHICH  MIGHT  HAVE  GONE  INTO  STEEL  AND  OTHER  INDUS- 
TRIES.  EXPENSES  GAIN  ON  EARNINGS "-Ciicago  Evening  Tost. 
AugustSI.  1910. 


W*.A. 


fMi 


o 


INDEX. 


Age   of   railroad 17 

Betterments  and  operating  expenses i;i8 

"Burden"  on   public 8,  SO 

Car  load,   little   increase   in 18,  109 

Cost   of   service 58 

conducting  transportation,   increase   of 99 

maintenance,    increased     101 

road  114 

unimportant   12 

Capitalization  of   Santa   Fe 41, 133 

and   earnings    70 

bond   issues    21,  90 

reorganization   old   company 44 

value   of  securities 31 

"water" 141 

Depots  and  public  vanity 82,  8 

Discounts    of    bonds Ifi,  43,  124 

Dividends,  w^hat  they  should  be 17 

future,   uncertain   116 

old   time   140 

Earnings,   always    inadequate 4 

and    capitalization    70 

compared  with  expenditures 32 

gross  decreased    110 

in    1910     93,  130 

Economies,    transportation     12,  16,  18,  60,  127 

Expenditures,  past   14 

non-revenue  producing   8,  62 

Expenses    of    regulation 20 

increased   operating    86,  104 

general    increase    108 

Examination,  direct   1 

cross   21 

redirect 117 

recross 130 

Freight  should  help  bear  passenger  burden 84 

Funds    inadequate    31 

Fuel   properties'    120,  122 

Investigation   suggested  of  prices   to  public 103 

Labor  and  railroads 9,  1 4,  94,  1 05 

in    making    rates 94,  105, 123 

Maintenance    of    road 25 

increased  cost  101 

Margin   of  safety 112 

Money,    more    needed 3,  56 

future    needs    for 14 

funds    inadequate   now 31 

M^here  it  has'  gone 119 

Newspaper  comment   143 

Partners,   not   creditors,    wanted 5 

Price  of  old  road 113 

Public   greatest   beneficiary 13 

Rates,   former,   too   low .^ 2 

and  prices  people  pay 129 

good,   essential   to   credit 10 

how  should  be  made 48,  78 

new,  small  revenue  from 67 

labor  and  capital  in   making 123 

reasonable,  what  are 10, 125 

factors    in    40 

what  the  traffic  should  bear 53 

Revenue,  small,  from  new  rates 67 

Service,  value  of,  to  shipper 76 

cost  of   58 

Subsidiary    lines    57, 133 

Taxes,   increase   of 19 

Value,  physical,  of  Santa  Fe 88 

Wages  of  employees 9,  14,  94, 105 


:^064G9 


OP  THE 

UNIVERSITY 

or 


The  matter  of  advances  of  rates  by  carriers  in  AVestern 
Trunk  Line,  Trans-Missouri,  and  Illinois  Freight  Committee 
territories,  numbered  3500  on  the  docket  of  the  Interstate 
Commerce  Commission,  came  on  for  hearing  in  the  Federal 
Building  at  Chicago  on  August  29,  1910.  Some  of  the  rates 
had  been  included  in  tariffs  filed  with  the  Commission  in  ac- 
cordance with  law  and  were  to  become  effective  July  1  last; 
but  in  the  night  of  June  30  the  Grovernment  secured  a  restrain- 
ing order  from  the  United  States  Circuit  Court  at  Hannibal, 
Missouri,  without  notice  to  the  carriers,  contrary  to  the  argu- 
ment and  the  spirit  of  the  times  that  injunctions  shall  not  be 
sought  or  granted  without  notice. 

By  subsequent  stipulation  between  the  President  of  the 
United  States  on  one  hand  and  the  presidents  of  the  various 
railway  companies  on  the  other  the  rates  so  suspended,  as  well 
as  rates  in  other  new  tariffs  not  affected  by  the  order  of  the 
court,  were  set  down  for  consideration  before  the  Interstate 
Commerce  Commission  at  Chicago  on  August  29.  The  Atchi- 
son, Topeka  and  Santa  Fe  Railway  Company  was  the  first 
carrier  to  present  its  case,  and  President  Ripley  was  the  first 
witness  to  appear  under  the  new  Interstate  Commerce  Law, 
approved  June  18,  1910,  and  commonly  known  as  the  Mann- 
Elkins  Law,  Section  15  of  which  authorizes  the  Interstate 
Commerce  Commission,  either  upon  complaint  or  upon  its  own 
initiative,  to  suspend  the  operation  of  a  tariff  or  schedule  of 
rates  filed  by  carriers  until  investigation  has  been  made  into 
the  reasonableness  of  such  rates. 


George  N.  Brown  and  C.  R.  Hillyer, 

Special  Examiners  for  the  Interstate  Commerce  Commission. 

Direct  examination  by — 

T.  J.   Norton,   General  Attorney  of  The   Atchison,  Topeka  and   Santa   Fe 
Railway  Co. 

Cross-examination  by — 

Frank  Lyon,  Counsel  for  Interstate  Commerce  Commission, 

J.  H.  Atwood,  Kansas  City,  for  the  National  Industrial  Traffic  League, 

Clifford  Thorne,  Des  Moines,  for  National  Live  Stock  Association. 

The  testimony  of  President  Ripley  follows : 

Direct  Examination. 

Mr.  Norton.    Your  name  is  E.  P.  Ripley? 
Mr.  Ripley.    Yes,  sir. 


Q.  You  are  president  of  the  Atchison,  Topeka  &  Santa  Fe 
Railway  Company  f    A.    Yes,  sir. 

Q.  How  long  have  you  held  that  office?  A.  Fourteen  years 
and  six  months. 

Q.  How  long  have  you  been  in  the  railway  service?  A. 
About  forty  years. 

Q.  In  what  capacities  have  you  acted  as  a  railway  man? 
A.  In  practically  all  capacities,  from  clerk  to  my  present 
position. 

Q.    Have  you  been  in  the  freight  department?    A.    Yes,  sir. 

Q.  What*^position  did  you  hold  in  that  finally?  A.  First 
as  agent  in  Boston,  afterwards  as  general  eastern  agent  in 
New  York,  afterwards  as  general  freight  agent  in  Chicago, 
traffic  manager  and  vice-president. 

Q.  With  what  company  were  you  traffic  manager  and  vice- 
president?  A.  Well,  I  was  traffic  manager  and  general  man- 
ager of  the  Chicago,  Burlington  &  Quincy,  and  vice-president 
of  the  Chicago,  Milwaukee  &  St.  Paul. 

Q.  How  long  were  you  in  the  traffic  department,  how  many 
years?  A.  Well,  I  have  been  more  or  less  in  the  traffic  de- 
partment all  my  life.  That  is,  I  have  had  more  or  less  to  do 
with  it.  I  was  directly  general  freight  agent  for  eight  years 
and  then  traffic  manager  for  three  years  more,  and  then  gen- 
eral manager,  and  then  as  vice-president  of  the  St.  Paul  I  had 
general  charge  of  the  freight  business. 

Q.  Have  you  had  experience  also  in  the  operating  depart- 
ment?   A.    Yes,  sir. 

Q.  How  long  and  what  kind?  A.  I  was  general  manager 
of  the  Burlington  for  two  years  and  have  had  for  the  last 
fifteen  years  general  supervision  of  the  operating  department 
as  well  as  other  departments. 

Q.  In  your  present  office  you  have  to  do  directly  with  both 
operating  and  traffic?    A.    Yes,  sir. 

Former  Rates  too  Low. 

Q.  Now,  Mr.  Ripley,  why  were  the  rates  involved  in  this 
litigation  raised,  if  you  know?  A.  They  have  not  been 
raised.  An  attempt  was  made  to  raise  them  for  two  reasons : 
one  was  that  they  were  too  low  per  se,  judged  from  any  rea- 
sonable standard;  but  perhaps  the  most  potent  reason  was  that 
we  needed  the  money. 

Q.  Why  do  you  say  they  were  too  low  per  sef  A.  Be- 
cause the  commodity  rates  that  are  covered  by  the  question 


at  issue  now  had  been  forced  by  various  causes,  some  of  them 
within  and  some  of  them  without  the  control  of  the  carrier, 
down  to  a  point  whicli  was  unreasonable  from  the  standpoint 
of  the  value  of  the  service  to  the  shipper,  and  unreasonable 
also  from  the  standpoint  of  the  return  to  the  carrier. 

Q.  You  say  this  condition  was  brought  about  by  circum- 
stances over  which  the  carriers  had  no  control  in  many  in- 
stances? A.  The  carriers  as  a  whole  had  no  control  over 
that  whatever.  The  carriers  individually,  in  some  cases,  could 
have  resisted;  but  these  commodity  rates  were  the  result  of 
the  competition  of  commodity  with  commodity,  the  competi- 
tion of  place  with  place,  locality  with  locality,  and,  more  than 
all,  the  competition,  the  "bearing"  of  rates,  so  to  speak,  by 
the  shippers  themselves.  The  railroads  were  absolutely  help- 
less and  have  been  alwavs  so  as  against  the  shipper. 

Q.  That  is  particularly  true  as  against  a  shipper  com- 
manding a  large  volume  of  freight?    A.    Naturally. 

Need  of  More  Moxey. 

Q.  Now  you  s|)oke  about  the  Santa  Fe  needing  the  money. 
Has  it  not  been  earning  enough?  A.  I  think  not.  The  Santa 
Fe  has  been — I  suppose  it  would  pass  as  having  been  a  rea- 
sonably prosj^erous  concern,  yet  its  earnings  for  the  fifteen 
years,  practically  fifteen  years  during  which  I  have  had  juris- 
diction over  it,  have  been  on  its  capitalization  about  4.75  per 
cent.  Perhaps  the  whole  story  ought  to  be  told :  that  average 
on  capitalization  is  over  a  series  of  fifteen  years.  Naturally 
the  last  ten  years  have  been  better  than  the  first  ten  years, 
but  that  is  the  story  as  to  fifteen  years;  and  even  in  the  last 
ten  years  the  earnings  on  the  capitalization  have  been  some- 
thing less  than  6  per  cent.  I  have  not  the  exact  figures  but 
they  are  in  a  statement  there  (referring  to  Santa  Fe  Exhibit 
1,  showing  the  financial  history  of  the  company). 

Furthermore  the  capitalization  does  not  represent  the  value 
of  the  property.  The  reproduction  value  of  the  property  to-day 
would,  in  my  opinion,  and  I  am  not  stating  it  merely  as  an 
opinion — I  have  reasons  for  believing  it  and  knowing  it — the 
property  could  not  be  reproduced  to-day  for  its  capitaliza- 
tion. If  you  separate  the  stock  from  the  bonds  the  property, 
has  earned  in  one  year  as  high  as  13  per  cent,  on  its  capital 
stock,  but  that  was  an  exceedingly — 

Q.  That  is  on  the  common  stock?  A.  That  is  on  the  com- 
mon stock.  That  was  an  exceedingly  prosperous  year.  Last 
year,  the  year  just  closed,  it  earned  8.8  per  cent. 


Now,  you  ask  if  that  is  not  money  enough,  and  I  say  most 
emiDhatically  that  it  is  not  money  enough.  It  is  not  money 
enough  to  do  the  things  that  the  public  expect  of  us,  the 
things  that  we  must  do  if  we  are  to  keep  abreast  of  the  times. 
When  an  institution  as  large  as  ours  is  standing  still,  it  be- 
gins to  go  backwards,  and  if  we  are  to  meet,  or  approximately 
meet,  the  demands  of  the  public  we  have  got  to  earn  a  very 
much  larger  margin  than  we  have  earned  yet,  in  order  to 
maintain  our  credit  and  obtain  the  money  to  do  what  is  neces- 
sary to  be  done. 

Earnings  Always  Inadequate. 

Q.  At  this  point,  in  line  with  your  statement  that  the  Santa 
Fe  during  the  fifteen  years  of  its  existence  has  paid  on  an 
average  4.68  per  cent,  on  its  stock —    A.    On  its  capitalization. 

Q.  On  its  cajDitalization — I  offer — this  compilation  shows 
earnings  on  the  investment?    A.     That  is  on  the  investment. 

Q.  Paid  on  its  investment.  I  offer  as  Santa  Fe  Exhibit  1 
this  tabulation,  a  copy  of  which  I  give  to  Mr.  Lyon,  represent- 
ing the  Interstate  Commerce  Commission. 

Q.  Now,  do  you  think  the  Santa  Fe  has  ever  earned  enough 
to  maintain  its  credit,  or  for  the  public  wellfare,  so  far  as 
freights  and  passengers  are  concerned?  A.  It  is  somewhat 
embarrassing  to  say  that  the  Santa  Fe  never  has  earned 
enough  to  maintain  its  credit,  because  its  credit,  as  railroad 
credits  go,  is  very  good;  but  the  majority  of  the  bonds  we 
have  sold  in  the  past  have  been  sold  at  less  than  i3ar.  While 
some  have  been  sold  at  par,  altogether  our  receipts  from  the 
sales  of  bonds  are  about  $8,000,000  to  date  less  than  their  face 
value,  representing  the  discount  that  we  are  obliged  to  accept. 

As  to  our  having  had  money  enough,  I  suppose  our  experi- 
ence is  the  same  as  that  of  most  other  railroads,  and  that  is 
that  there  has  never  been  a  time  when  we  did  not  have  before 
us  pressing  demands  for  two  or  three  or  four  times  as  much 
money  as  was  available.  We  make  an  annual  budget  every 
year,  our  subordinate  officers  state  their  requirements,  and 
state  what  in  their  judgment  it  is  necessary  or  desirable  to 
expend  on  the  property,  and  never  yet  have  we  been  able  to 
appropriate  as  much  as  was  asked  for,  and  very  seldom  have 
we  been  able  to  appropriate  half  what  was  asked  for. 

Q.  Have  you  at  any  time  been  obliged  to  reduce  what  you 
had  appropriated  when  it  came  to  expending  it?  A.  Yes, 
several  times  we  have  found  that  the  condition  of  the  market 


and  the  credit  of  the  railroads  generally  was  unequal  to  con- 
tinue that  which  we  had  projected,  and  we  were  obliged  to  cut 
that  down. 

Q.  Do  you  think  that  a  railroad  situated  as  the  Santa  Fe 
is,  reaching  from  the  Lakes  to  the  Gulf,  and"  to  the  Pacific 
Ocean,  should  ever  have  been  required  to  sell  its  bonds  at  a 
discount  of  about  $8,000,000?  A.  Well,  that  is  a  matter  for 
the  public,  and  for  those  who  have  money  to  loan,  to  judge  of. 
We  do  not  think  that  we  ought  to  be  required  to  sell  our  bonds 
at  a  discount;  but  if  the  people  who  have  the  money  differ 
with  us  in  that  respect,  we  are  really  helpless. 

Our  history  in  that  respect  is  probably  as  favorable  as  that 
of  most  of  the  railroads,  perhaps  better  than  that  of  the  aver- 
age railroad  in  the  United  States,  but  our  credit  ought  to  be 
good  enough  so  we  could  always  sell  our  bonds  and  stock  at 
par.  The  ideal  condition,  of  course,  is  that  we  should  be  able 
to  sell  our  stock  at  par. 

Partners  Wanted,  Not  Ceeditoes. 

We  should  be  able  to  take  in  more  partners  as  stockholders 
instead  of  taking  in  more  creditors  as  bondholders.  But  that 
has  not  been  always  possible;  in  fact  it  is  very  seldom  possible, 
either  with  us  or  with  any  railroad  company. 

Q.  AVould  you  not  say  that  a  railroad  situated  like  the 
Santa  Fe,  with  its  earning  power,  if  it  had  adequate  earnings, 
would  sell  its  securities  at  par?  A.  If  its  earnings  were  such 
as  to  give  the  public  confidence  that  dividends  could  be  main- 
tained at  a  reasonable  rate,  considering  the  risk,  there  would 
be  no  difficulty  in  selling  its  stock  at  par.  Some  railroads  are 
fortunate  enough  to  do  that.  The  Pensylvania,  I  think,  has 
issued  no  bonds  for  a  good  many  years.  It  always  has  ob- 
tained the  money  for  necessary  improvements  by  selling  its 
stock.    That  is  the  ideal  condition. 

Q.  What  is  your  idea  as  to  what  improvements  should  be 
made  out  of  the  earnings  and  what  out  of  capitalization? 
That  is  to  say,  should  the  rates  in  this  case  be  increased  so 
that  improvements  may  be  made  directly  from  the  earnings? 
A.  Well,  in  part.  There  are  certain  classes  of  expenditures 
that  should  be  made  from  earnings  always  rather  than  from 
the  sale  of  either  stock  or  bonds. 

Q.  For  example?  A.  Well,  for  example,  a  very  large  class 
of  expenditures  that  return  no  interest,  upon  which  there  is 
no  probability  and  no  possibility  of  any  direct  return  either 


G 

in  saving"  of  expenditures,  or  increasing  the  earnings.  In  that 
class  are  the  various  restrictions  and  improvements  demanded 
by  municipalities,  wliere  we  are  obliged,  for  instance,  to  ele- 
vate our  tracks  in  the  cities.  That  is  something  the  return 
from  which  financially  from  a  railroad  standpoint  amounts  to 
nothing.  It  is  of  safety  to  the  public,  convenient  to  the  pub- 
lic, and  in  a  certain  way  it  is  a  convenience  to  the  railroad ;  but 
the  interest  on  the  cost  of  an  improvement  of  that  kind  is  ten 
or  twenty  or  thirty  times  any  benefit  that  accrues  from  it  to 
the  railroads  themselves. 

The  building  of  fine  stations,  while  it  gratifies  the  local  pride 
of  a  community,  while  every  little  town  along  the  line  wants 
a  station  which  shall  be  the  pride  of  the  place  and  in  most 
cases  the  very  best  building  in  the  city — does  not  sleep  nights, 
so  to  speak,  until  it  gets  something  of  that  kind,  particularly 
if  another  town  has  it — all  those  things  cost  the  railroad  a 
great  deal  of  money,  yet  they  pay  the  railroad  absolutely  noth- 
ing in  return. 

The  same  is  true  of  the  paving  of  streets.  The  communities 
all  along  our  line,  as  they  improve,  as  they  grow  up  from  coun- 
try villages  to  would-be  metropolises,  demand  all  manner  of 
improvements  in  the  way  of  gates,  in  the  way  of  paving  of 
crossing,  in  additions  to  stations,  and  all  that  sort  of  thing; 
and  they  ask  for  it  properly,  it  is  a  proper  municipal  regula- 
tion, but  for  the  expenditure  there  is  no  return  to  a  railroad 
company,  and  all  those  things,  in  my  judgment,  ought  to  be 
met  very  largely  out  of  earnings. 

The  question  of  the  proper  distribution  of  the  burden  of 
such  expenses  between  capital  and  earnings  is  one  that  can 
be  argued  on  both  sides  and  argued  almost  indefinitely,  but  it 
is  my  belief  that  the  present  generation  should  join  in  the 
expense  of  those  matters — that  the  railroads  should  be  al- 
lowed to  pay  for  them  out  of  earnings  in  order  that  the  entire 
burden  may  not  be  put  in  capital  and  thus  settled  on  posterity. 

When  a  municipality  builds  a  water  works,  or  issues  bonds 
for  the  improvements  of  its  streets,  it  begins  at  once  to  apply 
a  certain  amount  of  the  taxes  to  the  extinction  of  those  bonds. 
The  railroad  companies  should  be  permitted  to  do  the  same 
thing.  A  portion  of  the  income  derived  by  these  municipali- 
ties from  taxes  is  immediately  set  aside  as  a  sinking  fund  to 
extinguish  that  debt.  Unless  the  railroad  company  is  per- 
mitted to  earn  sufficient  margin  over  and  above  its  dividend 
requirements — assuming  always  that    its    dividend    require- 


ments  are  reasoanblo — unless  the  railroad  company  is  per- 
mitted to  earn  a  substantial  margin  over  and  above  that,  it 
not  only  loses  its  credit,  but  it  is  also  unable  to  meet  the  class 
of  expenditures  that  I  Jiave  been  discussing  without  the  sale 
of  additional  bonds,  the  placing  of  additional  mortgages  on 
its  property,  and  the  consequent  transferring  of  a  certain 
burden  upon  posterity  which  ought  to  be  borne  by  the  pres- 
ent generation.  That  is  what  has  been  done  in  England.  The 
policy  of  paying  everything  out  in  dividends,  putting  nothing 
back  into  the  property  out  of  earnings,  has  been  pursued  to 
an  extent  there  that  has  made  the  capitalization  of  those  rail- 
roads so  large  that  it  is  almost  impossible  for  them  to  earn 
anything  on  it. 

Q.  Now,  in  what  is  commonly  known  among  lawyers  as  the 
Knoxville  Water  case  it  was  stated  by  the  Supreme  Court  of 
the  United  States  that  in  addition  to  keeping  up  the  plant  in 
workable  and  proper  condition  the  owners  were  entitled  to 
charge  something  off,  or  set  something  aside,  for  what  might 
be  termed  obsolesence,  and  I  think  it  was  stated  at  about  2 
per  cent,  in  that  case.  Do  you  think  that  a  railroad,  in  addi- 
tion to  preparing  for  the  deterioration  which  the  Interstate 
Commerce  Commissions  prescribe  for  its  equipment,  should 
also  prepare  for  the  obsolesence  of  the  plant  itself!  A.  A 
railroad  company  certainly  should  be  sufficiently  strong  finan- 
cially to  take  care  of  it,  cither  by  improvement — either  by  a 
stated  charge  to  depreciation,  or  by  improvements  made  out 
of  earnings  which  would  offset  any  depreciation  that  there 
may  be.  For  instance,  a  station  building  which  is  entirely 
adequate  for  today,  or  was  entirely  adequate  when  it  was 
built  fifteen  years  ago,  becomes  inadequate,  and  it  has  to  be 
torn  down  and  cast  away  and  replaced  with  another  build- 
ing. I  have  already  said  that  I  think  these  things  should  be 
largely,  if  not  entirely,  made  out  of  earnings,  and  that  pro- 
vides in  a  way  for  obsolesence  or  depreciation.  The  general 
custom  has  been,  I  think,  fully  to  maintain  the  properties  out 
of  earnings  wherever  that  was  possible,  wherever  there  were 
earnings  enough ;  and  that  full  maintenance,  accompanied  per- 
haps with  some  improvement,  has  been  supposed  to  take  care 
of  the  depreciation,  so  that  there  never  has  been  any  actual 
charge  for  depreciation  on  roadway  and  track.  But  whichever 
way  it  is  done,  it  amounts  to  the  same  thing;  you  either  raise 
enough  money  from  the  public  to  take  care  of  those  things 
out  of  earnings,  or  you  should  charge  enough  in  rates  to  take 
care  of  them  by  charging  depreciation  to  expenses. 


8 

Future  Non-paying  Investments. 

Q.  Speaking  of  the  expensive  improvements  which 
do  not  yield  any  added  revenue  in  return,  referring 
to  stations,  will  you  have  in  the  future  large  de- 
mands to  make  improvements  of  this  sort!  Have  you  any 
in  mind?  A.  We  have  a  great  many  in  mind.  There  is  not 
a  railroad  in  this  western  territory  which  has  not  substantially 
arrived  now  at  the  point  where  all  its  original  facilities  which 
have  not  a]]bady  been  replaced  must  be  replaced.  Practically 
all  the  railroads  in  this  western  country  have  been  partially 
rebuilt,  or  will  have  to  be  almost  immediately  partially  re- 
built. Many  of  them  have  been  almost  wholly  rebuilt,  and  yet 
there  are  a  thousand  and  one  things  that  are  almost  obsolete 
which  have  got  to  be  renewed.  We  have  very  large  matters 
of  that  kind  staring  us  in  the  face  now.  The  railroads  enter- 
ing Kansas  City,  for  instance,  are  about  to  spend  $30,000,000 
for  additional  facilities  in  that  city,  including  a  magnificent 
station.  Some  of  the  railroads  in  Chicago,  notably  the  line 
over  which  we  enter  the  city,  have  got  very  soon  to  make  a 
similar  expenditure  here. 

Q.  That  is  the  Dearborn  street  station?  A.  Yes.  And 
the  Northwestern  has  spent,  I  do  not  know  how  many  million 
dollars,  for  a  station  in  Chicago,  on  which  investment  it  can- 
not earn  a  cent  of  interest.  The  Pennsylvania  is  in  the  same 
position.  I  suppose  that  there  has  got  to  be  spent  in  Chicago 
perhaps  60  or  70  million  dollars;  that  is,  there  should  be  in 
the  next  five  or  six  years — for  imiDrovements  that  will  pay  the 
railroads  nothing  practically. 

Q.  In  addition  to  dividends  which  give  the  company  credit, 
and  to  making  large  improvements  out  of  earnings,  and  to 
guard  against  deterioration  of  the  plant,  should  the  earnings 
be  sufficient  to  protect  you  against  lean  years?  A.  Lean 
years  come  as  we  all  know,  and  there  ought  to  be  the  same 
provision  for  them  that  any  mercantile  establishment  has. 
Railroads  have  got  to  take  their  chances  with  the  public  so 
far  as  the  lean  years  are  concerned,  and  they  certainly  ought 
not  to  be  judged  as  to  their  results  by  the  best  years  any  more 
than  by  the  worst. 

The  ''Burden"  on  the  Public. 

Q.  Speaking  on  what  the  rate  should  be,  how  much  con- 
cern, in  your  opinion,  does  the  public  have  in  reasonable  rates 


9 

or  in  the  rates  as  charged?  A.  As  to  tine  particular  rates  in 
question — and,  by  the  way,  I  ought  to  say  that  these  particular 
advances  amount  to  very  little  in  money;  these  particular  ad- 
vances so  far  as  applied  to  us  will  not  bring  us  one-tenth  of 
what  we  ought  to  have — so  far  as  the  results  on  the  public  are 
concerned,  of  course  there  are  two  classes  of  the  public.  As 
to  the  consumer,  all  these  rates  that  are  under  discussion  are 
absolutely  a  negligible  quantity.  There  is  not  a  family  in  the 
United  States  that  would  know  the  difference  between  the  rates 
as  they  exist  now  and  the  rates  that  are  proposed  here,  if  they 
were  not  told  of  it.  I  doubt  whether  the  rates  that  are  pro- 
posed here  would  make  a  difference — to  be  exceedingly  liberal, 
I  do  not  think  there  is  any  family  of  five  persons  whose  in- 
come would  be  depleted  by  $1  a  year  by  these  advances  in 
rates.  It  is  a  negligible  quantity  so  far  as  the  consumers  are 
concerned.  A  great  number  of  these  commodities  that  are 
under  discussion  are  sold  today  at  the  same  price  everywhere 
in  the  United  States;  the  freight  charge  is  absolutely  uncon- 
sidered, or  at  least,  it  is  a  negligible  quantity — they  are  all 
sold  at  the  same  price  regardless  of  what  the  freight  rate  is. 

Q.  That  is  particularly  true  of  many  kinds  of  shoes  and 
hats  and  wearing  apparel?  A.  Almost  all  standard  articles 
such  as  are  advertised  in  the  papers  are  sold  at  the  same  price 
the  whole  country  over. 

Q.  The  same  at  the  door  of  the  factory  in  New  England  as 
it  is  in  San  Francisco,  3000  miles  away?    A.    Yes. 

Q.  In  any  event  what  part  of  the  rates  go  back  to  the  pub- 
lic, and  in  what  way  ?  A.  Well,  on  an  average,  taking  the  rail- 
roads of  the  United  States,  about  70  per  cent,  of  every  dollar 
they  earn  goes  back  to  the  public  in  one  shape  or  another. 

Eaileoads  and  Labor. 

Q.  And  the  bulk  of  that,  as  I  understand,  goes  back  in 
labor,  or  a  good  part  of  it?  A.  In  labor  directly  and  indi- 
rectly, labor  and  the  material  into  which  labor  enters,  and 
which  is  perhaps  the  principal  factor.  I  think  it  is  probably 
quite  correct  to  say  that  of  all  the  disbursements  of  a  railroad 
more  than  half  goes  to  labor. 

Q.  And  that  reminds  me,  that  the  railway  is  probably  the 
heaviest  single  buyer  in  the  country?  A.  Yes,  sir;  there  is 
no  question  about  that. 

Q.  And  buys  about  half  the  lumber  of  the  United  States? 
A.    About  one-half,  I  think  it  figures. 


10 

Q.  And  so  of  iron  and  steel  and  other  commodities?  A, 
Yes. 

Q.  And  in  that  way,  in  addition  to  keeping  the  enormous 
payroll  of  itself  up,  it  attends  in  great  measure  to  the  pay- 
rolls of  other  concerns?    A.    Very  largely. 

Q.  From  your  line  of  statements  then  I  take  it  that  the 
prosperity  of  the  carriers,  that  they  earn  reasonably  and  move 
forward  and  have  money  to  spend,  as  you  have  stated,  is  of 
more  importance  than  the  cheese-paring  of  a  few  freight 
rates?  A.  Infinitely  more.  I  do  not  know  of  anything  that 
would  precipitate  trouble  in  this  country  any  more  surely  or 
any  faster  than  non-prosperity  on  the  ]iart  of  the  railroads. 
They  are  the  largest  buyers  among  tlie  single  interests  in  the 
country,  and  they  are  actually  the  largest  buyers  of  a  great 
many  commodities. 

Good  Eates  Essential  to  Ceedit. 

Q.  Well,  in  addition  to  being  the  largest  buj'^ers,  are  they 
not  also  the  largest  borrowers  of  money?  A.  I  think  so.  I 
think  that  would  be  pretty  generally  conceded,  that  the  rail- 
roads' financial  demands  are  heavier  than  those  of  any  other 
interest. 

Q.  Is  it  not  true  that  that  is  a  demand  which  never  ceases? 
A.  It  never  will  cease  until  the  country  stops  growing.  It  is 
very  important,  I  think,  that  railroad  credit  should  be  main- 
tained in  order  to  afford  opportunities  for  investment.  Rail- 
road bonds  heretofore  have  been  rather  a  favorite  invest- 
ment on  the  theory  that  they  were  safe  properties,  safer  than 
the  average  investment.  As  soon  as  that  feeling  is  disturbed 
it  is  going  to  make  a  great  difference  to  the  country.  The  mat- 
ter of  investments  for  insurance  comjDanies  and  banks  will 
be  a  very  serious  matter. 

What  aee  EEASOisrABLE  Rates? 

Q.  What  is  the  element  of  first  importance  in  getting  at  the 
reasonableness  of  freight  rates,  in  your  opinion?  A.  That  is 
a  question  that  is  very  often  asked  and  which  it  is  difficult  to 
answer  in  words ;  it  is  difficult  to  express  exactly  what  I  mean. 
First  and  foremost,  there  never  was  any  better  definition  of 
a  reasonable  rate  than  that  which  was  given  many  years  ago 
by  somebody  and  which  has  been  used  as  a  byword  and  a  re- 
proach ever  since,  namely,  ''what  the  traffic  will  bear."    That 


11 

is  the  best  definition  that  ever  was  given  of  it.  That  does  not 
mean  all  the  traffic  will  bear,  it  does  not  mean  all  that  can  be 
extorted  or  squeezed  out  of  it,  but  what  the  traffic  will  bear 
having  regard  to  the  freeest  possible  movement  of  commodi- 
ties, the  least  possible  burden  on  the  producer  and  on  the  con- 
sumer. The  middleman  can  take  care  of  himself.  But  with 
those  two  qualifications,  a  reasonable  rate  is  what  the  traffic 
will  bear.  If  the  utmost  freedom  of  action  is  given,  the  rail- 
roads will  carry  a  very  large  amount  of  property  at  less  than 
the  average  cost;  that  is  to  say,  there  are  conditions  under 
which  property  can  be  moved  from  place  to  place  at  less  than 
the  average  cost  of  the  whole  movement  and  still  pay  a  small 
margin  of  profit. 

Q.  Business  requiring  that.  A.  Business  requiring  it,  yes. 
The  trouble  is  that  when  the  question  of  reasonableness  is  in- 
volved the  public  applies  to  railroad  rates  their  usual 
standard  of  reasonableness.  For  instance,  if  one  asks  what 
is  a  reasonable  price  for  a  lot  on  ^Michigan  avenue,  the  mind 
of  the  party  who  is  asked  immediately  reverts  to  the 
question  of  what  the  property  is  worth  on  the  other 
side  of  the  street  and  what  it  is  worth  on  some  other 
avenue  and  what  it  is  worth  alongside  in  a  similar 
location,  and  he  forms  his  idea  of  reasonableness  on  that 
basis.  Similarly,  the  average  citizen,  in  discussing  the  ques- 
tion of  reasonableness  of  rates,  says  that  the  A,  B  and  C  Rail- 
road hauls  certain  business  from  A  to  B  at  abnormally  low 
rates.  He  does  not  know  the  reason  for  it.  The  real  reason 
may  be  and  probably  is  that  if  it  did  not  move  at  that  rate  it 
could  not  move  at  all ;  but  he  immediately  applies  that  stand- 
ard or  criterion  to  rates  which  are  made  under  entirely  dif- 
ferent circumstances,  under  different  conditions,  and  he  says, 
"This  rate  you  are  making  is  absurd,  you  are  carrying  this 
business  at  half  or  even  a  quarter  of  what  you  are  charging 
for  this  other,  therefore  your  higher  rate  must  be  unreason- 
able." There  is  no  better  guide  for  the  making  of  rates  with 
proper  limitation  than  just  that  old  phrase,  what  the  traffic 
will  bear. 

Q.  And  that  has  been  the  one  applied  from  the  beginning? 
A.    Yes,  always. 

Q.  And  they  have  not  got  away  from  it  yet?  A.  They 
never  will  get  away  from  it.  Of  course  restrictions  may  be 
placed  about  it  by  law  or  otherwise  so  that  it  will  be  impos- 
sible to  do  that,  but  that  is  the  real  basis  upon  whicl:  rates 
ought  to  be  made,  in  my  opinion. 


12 

Q.  Then  I  take  it  from  your  statement  that  the  general 
test  of  the  reasonableness  of  rates  is  the  result  of  their  ap- 
plication? A.  It  is  a  judicial  function,  the  making  of  rates, 
in  which  all  the  conditions  have  got  to  be  taken  into  account. 
It  is  jDerfectly  proper  that  there  should  be  regulations  to  pre- 
vent, if  you  please,  extortion;  although  I  do  not  think  there 
ever  was  any  extortion  in  this  country. 

Q.  Then  if  in  this  countrj^  or  territory  the  traffic  has  moved 
freely  and  business  has  been  prosperous  and  commercial 
liouses  have  made  money,  more  than  you  have  with  your  rail- 
road, the  inference  to  be  deduced  from  that  is  that  the  rates 
have  been  reasonable,  if  I  understand  vour  statement?  A. 
That  what? 

Q.  That  the  rates  have  been  reasonably  low?  A.  I  think 
as  a  rule  that  they  have  been  unreasonably  low. 

Cost  of  Service  Relatively  Unimportant. 

Q.  Coming  to  the  question  of  A'olume  of  traffic  and  cost  of 
rendering  the  service,  I  will  ask  you  first  to  say  what  you  will 
about  the  cost  of  rendering  the  service  as  being  an  element 
in  the  reasonableness  of  the  rates,  in  ascertaining  what  are 
reasonable  rates.  A.  1  think  that  the  cost  of  service  is  only 
one  of  the  items  to  be  considered  in  the  making  of  a  reason- 
able rate,  and  not  a  very  important  item  at  that — either  the 
cost  of  service  or  the  returns  made  on  capital.  I  think  that 
while  they  may  be  considered  under  certain  conditions,  they 
are  remote.  The  railroads  in  this  western  territory  receive 
today  probably  less  than  their  expenses  or  cost  would  have 
been  25  years  ago. 

Transportation  Economies. 

The  railroads  of  course  have  been  obliged  to  introduce  very 
great  economies.  They  have  built  their  tracks,  enlarged 
everything  they  had,  their  passing  tracks,  turntables  and 
roundhouses,  built  larger  engines,  built  larger  and  better  cars ; 
but  all  those  things  are  accomplished  only  by  very  large  ex- 
penditures of  borrowed  money  and  they  have  failed  to  offset 
the  reductions  in  rates  which  have  followed.  Those  economies 
are  not  without  their  thorns,  either.  In  many  respects  those 
economies  have  not  worked  out  so  well  as  we  thought  that  they 
would. 

Q.    For  example,  when  you  put  on  a  locomotive  of  greater 


13 

tonnage  capacity  you  have  correspondingly  to  increase  the 
wages  of  the  men  who  manage  and  operate  it?  A.  Yes.  We 
are  proposing  to  put  on  and  we  have  already  a  few  so-called 
Mallet  engines  which  are  practically  two  engines  in  one,  and 
a  good  deal  of  our  economy  may  be  lost  there  because  the  men 
promptly  demand  twice  as  much  money  for  running  one  of 
those  engines. 

Q.  Those  engines  also  are  a  great  wear  and  tear  upon  the 
track  and  roadbed?  A.  Yes.  We  have  had  to  strengthen  all 
our  tracks  and  bridges  in  order  to  carry  the  amount  we  have 
got.  Moreover,  we  build  a  car  now  which  costs  us  about  100 
per  cent,  more  than  the  car  of  15  years  ago.  It  is  built  of 
steel  and  will  carry  anywhere  from  50  to  100  per  cent,  more 
than  the  car  of  15  years  ago  would  carry,  and  it  is  equipped 
with  couplers,  so  that  men  do  not  have  to  go  between  the  cars 
to  couple  up  trains.  That  is  very  proper;  it  saves  personal 
injuries  and  men's  lives  and  all  that  sort  of  thing.  But  the 
result  of  coupling  with  the  automatic  couplers,  coupling  by  im- 
pact, as  it  is  called,  is  that  everything  in  the  car  that  is  not 
nailed  down  is  more  or  less  liable  to  be  broken.  Our  loss-and- 
damage  claims  are  running  about  $1,600,000  a  year.  They 
have  been  enormously  increased  by  just  that  one  improve- 
ment, which  is  looked  upon  as  an  economy,  but  which  is  not  all 
an  economy. 

Public  Greatest  Beneficiary. 

Q.  Now,  in  your  opinion,  with  rates  adequate  to  make  ex- 
penditures such  as  you  have  described,  who  would  get  the 
greater  benefit  from  the  use  of  the  money,  the  stockholders  or 
the  public?  A.  I  suppose  that  would  depend  very  largely  on 
how  much  was  paid  to  the  stockholders  and  how  much  was 
given  to  the  public;  it  depends  on  the  policy.  If  a  railroad 
company  is  so  fortunately  situated  that  it  can  give  its  stock- 
holders something  and  give  the  public  something  also,  the 
benefits  would  be  largely  on  the  side  of  the  public,  because 
what  the  public  needs  is  better  railroads  and  better  service. 
There  is  no  railroad  in  this  western  country — I  will  not  say 
that — there  is  hardly  any  railroad  in  this  country  today  that 
is  built  as  it  ought  to  be^  built,  that  has  the  safety  appliances 
that  it  ought  to  have,  or  that  is  in  the  condition  that  the  public 
interests  require.  I  think  all  my  railroad  friends  will  bear  me 
out  in  making  that  statement.  Or  course  we  do  not  like  to  de- 
preciate our  own  property,  but  the  best  railroads  in  this  coun- 


u 

try  west  of  the  Alleghenj'  Mountnins  are  very,  xevy  far  short 
of  what  they  ought  to  be  to  give  the  service  that  the  public  re- 
quires and  has  the  right  to  demand — or  would  have  the  right 
to  demand  if  they  paid  for  it. 

Labor  and  Wages  Again. 

Q.  While  I  think  of  it,  and  before  we  proceed  further,  did 
you  state  or  can  you  state  in  amount  the  increase  of  wages 
that  the  Santa  Fe  has  to  meet  this  current  year?  A.  Well, 
this  current  year  so  far  as  we  know  now,  our  wages  have  been 
advanced  as  compared  with  last  year  almost  $2,000,000. 

Q.  That  is  in  addition  to  numerous  advances  in  years 
past?  A.  Oh,  yes;  I  am  comparing  it  with  the  year  before, 
with  last  year. 

Examiner  Beown.  That  is  your  wage  advance  on  the  Santa 
Fe  System  involves  $2,000,000  more  than  you  paid  last  year? 

Mr.  Ripley.    With  more  to  come. 

Mr.  Lyon.  What  year  did  you  mean  to  cover  by  the  two 
million  dollars,  the  year  ending  June  30th,  1911,  or  the  year 
preceding! 

Mr.  EiPLEY.  I  am  talking  about  the  fiscal  year  which  began 
the  first  of  July  last  and  as  compared  with  the  year  which 
ended  then. 

Examiner  Hillyee.  Have  you  any  estimate  of  how  much 
more  to  come? 

Mr.  Ripley.  We  cannot  tell.  We  know  the  enginemen  and 
trainmen  are  formulating  demands.  What  the  ultimate  result 
will  be  we  cannot  say.  If  they  should  get  what  they  ask  for  it 
would  add  $2,500,000  or  more,  probably. 

Future  Needs — Past  Expendituees. 

Mr.  Norton.  Do  you  want  to  reduce  to  a  figure,  do  you 
want  to  make  a  statement,  as  to  what  you  think  the  Santa  Fe 
should  earn  on  its  investment  as  shown  by  the  statement  put 
in  as  Exhibit  1  in  order  to  have  money  to  pay  adequately  its 
stockholders,  to  make  the  improvements  necessary,  to  borrow 
money,  to  have  the  credit  to  borrow  it  at  low  rates,  and  to 
serve  the  public  to  the  fullest  proper  capacity?  A.  That,  of 
course,  is  a  matter  of  judgment.  That  would  vary  with  dif- 
ferent roads.  So  far  as  the  Santa  Fe  is  concerned,  I  think  we 
ought  to  earn  double  what  we  pay  in  dividends  at  least.  For 
instance,  if  we  pay  six  per  cent,  in  dividends,  I  think  we  ought 


15 

to  earn  12  per  cent,  on  our  stock,  if  not  more;  certainly  not 
less  than  that. 

Q.  Now,  Mr.  Eipley,  what  has  become  of  the  money  that 
you  have  had  heretofore  in  the  operation  of  the  Santa  Fcl 
A.    What  has  become  of  it! 

Q.  Yes.  I  mention  that  in  view  of  some  things  from  our 
shipping  friends  to  the  effect  that  we  have  got  a  lot  of  money 
somewhere.  A.  We  have  not  got  any  that  is  not  appropri- 
ated. At  the  moment  we  have  got  a  little  on  hand  which  is 
going  out  pretty  fast,  but  I  suppose  what  you  mean  is  how  our 
income  has  been  appropriated? 

Q.  Yes,  and  have  the  proceeds  of  your  bonds  gone  entirely 
into  the  property?    A.    Absolutely. 

Q.  In  addition  to  the  sales  of  the  bonds  on  which  you  suf- 
fered discount,  as  I  understand,  of  about  $8,000,000,  have  you 
put  earnings  into  the  property?  A.  We  have  put  in  about 
$40,000,000  of  earnings  in  the  last  15  years,  which  has  not  been 
capitalized,  by  the  way. 

Q.  It  has  not  been  capitalized?  A.  No.  We  have  written 
off — I  am  not  sure  that  we  have  written  all  that  off.  Mr. 
Bailey  (General  Auditor  Santa  Fe),  we  have  written  off  about 
$43,000,000,  have  we  not? 

Mr.  Bailey.     Twenty-three  millions  written  off'. 

Mr.  Eipley.  Well,  $40,000,000  of  earnings  have  gone  into 
the  property,  of  which  $23,000,000  has  been  written  off  and 
absolutely  disappeared.  In  addition  to  that  there  has  been 
$3,000,000  received  on  land  sales  which  has  also  gone  into  the 
property  and  been  written  off,  is  not  that  right? 

Mr.  Bailey.    Correct. 

Mr.  Lyox.    That  is  in  addition  to  your  dividends  declared? 

Mr.  Ripley.  In  addition  to  our  dividends  declared,  but  it 
has  not  been  added  to  our  capital  account.  And  in  addition 
to  that,  until  the  Interstate  Commerce  Commission  made  cer- 
tain rules  for  us,  there  had  been  a  very  liberal  application  of 
earnings  charged  directly  to  expenses  in  keeping  up  the  prop- 
erty. 

Mr.  NoETON,  I  understand  this  $8,000,000  of  discount  on 
your  securities  has  also  been  written  off.  A.  Yes,  it  also  has 
been  made  up  and  does  not  appear  as  capital  account. 

Examiner  Hillyee.  What  per  cent,  of  discount  does  that 
$8,000,000  represent? 

Mr.  Eipley.  Well,  various  percentages.  When  we  first  be- 
gan to  sell  our  bonds  and  when  our  credit  was  not  very  good 
we  sold  some  as  low  as  86,  I  think. 


16 

Mr.  Bailey.     821  flat. 

Mr.  Ripley.    82]  fiat,  yes. 

Examiner  Hillyer.    That  is  the  lowest? 

Mr.  RiPLEY'.  That  is  the  lowest,  and  there  have  been  various 
fluctuations  in  our  credit. 

Mr.  Lyon.    What  did  your  last  bonds  sell  for? 

Mr.  Ripley.  Our  last  bonds  were  convertible  bonds,  conver- 
tible into  stock,  and  sold  at  par. 

Mr.  Norton.  Sold  at  par  on  account  of  their  being  conver- 
tible, probably?    A.    Yes. 

Mr.  Ly^on.  Do  you  know  that  to  be  a  fact?  I  am  trying  to 
get  something  definite,  and  Mr.  Norton  says  they  were  prob- 
ably sold  at  par  on  that  account.  I  wanted  to  get  from  you 
as  president  som^ething  definite. 

Mr.  Ripley.  Inasmuch  as  our  first  mortgage  bonds  are  sell- 
ing at  about  98  and  our  convertibles  are  selling  at  about  101, 
the  inference  is  very  clear  that  the  convertible  quality  or 
privilege,  the  gambling  chance,  is  what  makes  the  difference. 

Mr.  Lyon.  About  98  per  cent.,  then,  you  figure  is  the  value 
of  the  bonds,  of  the  flat  bond  ?  A.  No,  I  do  not  think  it  is  worth 
as  much  as  that.  Of  course  our  first  mortgage  bonds,  which 
are  a  first  lien  on  everything  we  have  got,  are  selling  for 
about  98  or  99. 

Mr.  Norton.  It  is  not  likely  you  could  get  that  figure  if  you 
:had  a  large  quantity  to  offer,  is  it?    A.     Not  now,  no. 

Economies  Again. 

Q.  Have  you  said  all  you  care  to  say  on  the  subject  of 
economies  so-called?  A.  I  think  so.  I  think  it  is  difficult  to 
say  what  the  limit  of  our  economies  is,  and  it  is  difficult  also 
to  say  what  the  limit  of  our  expenses  will  be.  There  is  dan- 
ger of  obsolescence  in  everything  we  own.  We  do  not  know 
when  we  will  have  to  throw  away  our  locomotives ;  something 
may  be  discovered,  electrical  or  otherwise,  which  will  make 
them  obsolete. 

Q.  How  much  money  have  you  in  locomotives?  A.  We 
have  practically  2,000  locomotives;  I  should  say  $40,000,000. 

Q.  In  addition  to  setting  those  aside  you  would  have  to 
supply  yourselves  with  some  other  motive  power.    A.    Yes. 

Q.    Probably  of  equal  cost?    A.    Yes. 


17 


Age  of  a  Eailroad. 


Examiner  Browx.  The  tliouglit  occurred  to  me  in  this  con- 
nection— I  recollect  as  you  went  along  you  stated  that  the 
western  roads,  as  I  understand,  about  all  of  them  would  have 
to  be  rebuilt.  Does  that  mean  that  the  life  of  a  railroad  is 
about  50  years? 

Mr.  EiPLEY.     Xo. 

Examiner  Browx.  I  take  it  most  of  the  western  roads  have 
been  built  round  about  50  years,  have  thej'  not! 

Mr.  Ripley.  Yes,  sir.  Some  of  them  longer,  but  they  have 
been  in  constant  course  of  rebuilding  ever  since  they  were  con- 
structed. The  railroad  of  50  years  ago  would  not  carry  any- 
thing now,  and  the  railroad  of  50  years  ago  would  not  be  con- 
sidered even  equal  to  a  contractor's  plant  for  building  a  rail- 
road. They  have  been  in  constant  course  of  rebuilding  ever 
since,  and  that  lias  been  going  on  indefinitely, 

Mr.  XoRTOx.  They  have  as  a  matter  of  fact  been  rebuilt 
several  times,  have  they  not?    A.     Oh,  yes,  built  and  rebuilt. 

Q.  Within  my  recollection  the  Santa  Fe  has  been  rebuilt 
about  three  times  in  the  western  country?     A.    Yes. 

What  Dividex^ds  Should  Be. 

Q.  One  thing  I  want  to  make  distinct  while  I  think  of  it. 
In  your  testimony  this  forenoon  you  spoke  about  earning 
twice  as  much  from  the  investment  in  the  property  as  you  paid 
in  dividends.  I  should  like  to  know  what  you  think  you  ought 
to  pay  in  dividends  to  the  shareholders?  A.  Well,  that  is  a 
matter  of  judgment ;  I  do  not  think  we  ought  to  pay  less  than 
six  per  cent,  in  order  to  make  the  stock  reasonably  attractive 
and  keep  our  credit  up. 

Q.  And  that  would  make  the  earnings  on  the  investment 
not  less  than  12  per  cent?  A.  Yes,  it  would  make  the  earn- 
ings on  the  stock  not  less  than  12  per  cent.,  and  that  would  be 
less  than  12  per  cent,  on  the  investment.  It  has  been  fre- 
quently stated  that  it  has  been  the  policy  of  the  Pennsylvania 
Railroad  to  put  one  dollar  into  the  property  for  every  dollar 
of  dividends  paid,  and  I  think  that  is  a  very  modest  and  very 
excellent  plan. 

Q.  Are  we  to  understand  that  the  stock  of  the  Santa  Fe 
is  less  than  the  investment,  from  your  statement?  A.  I  said 
that  six  per  cent,  on  the  stock  would  be  very  much  less  than 
six  per  cent,  on  the  total  investment. 

Q.  Yes,  I  understand.  Xow  in  addition  to  what  you  stated 
this  morning  about  the  increase  of  wages  of  employes,  what 
have  you  to  say  about  the  cost  of  material  entering  into  use 


18 

by  the  railway  company?  A.  Well,  in  the  last  ten  years  the 
cost  of  material  has  not  very  much  enhanced.  The  additional 
cost  to  the  railroad  is  more  in  the  line  of  more  material  and 
better  material  than  in  the  mere  cost  of  it.  And  if  you  will  go 
back  20  years  or  even  15  years,  there  has  been  a  very  marked 
increase  in  price,  but  for  the  last  10  years  prices  have  not  been 
vastly  increased  per  unit.  But  a  car  that  we  used  to  pay  $800 
for  ten  years  ago  we  are  paying  $1,200  for  now.  It  is  not 
the  same  kind  of  a  car,  it  is  a  very  much  better  car.  And  the 
same  thing  runs  through  almost  everything  we  do,  we  are 
obliged  to  furnish  a  better  article.  The  only  thing  that  has 
very  largely  increased  is  the  matter  of  ties,  and  those  have 
increased  enormously  and  will  increase  still  more  enormously 
in  the  immediate  future.  In  fact  five  years  from  now  I  do 
not  know  exactly  from  where  we  are  going  to  get  our  ties, 
any  of  us. 

Q.  Have  you  been  making  provisions  for  ties  in  the 
future?  A.  We  own  a  lai^ge  amount  of  tie  timber  on  the 
stump  lands  which  we  have  will  take  care  of  us  for  some  years, 
and  we  are  planning  additional  forests  to  take  care  of  us 
hereafter. 

Little  Increase  in  Car  Load. 

Q.  Eeferring  to  the  larger  cars  and  the  better  cars  that 
you  have  mentioned,  do  they  carry  relatively  a  heavier  paying 
load  than  the  old  cars  carried?    A.    Theoretically  they  do. 

Q.  Practically?  A.  Practically  they  do  in  some  cases,  but 
in  a  great  many  cases  they  do  not,  because  we  have  a  great 
many  light  lines,  a  great  many  light  branches,  where  there  is 
not  enough  business  to  load  the  cars  fully;  and  in  fact  on  all 
our  lines  there  are  a  great  many  classes  of  business  where  you 
cannot  load  to  maximum  load,  so  that  the  increased  tonnage 
per  car  we  get  applies  only  to  our  main  lines,  and  then  only  to 
certain  portions  of  our  tonnage.  It  is  a  doubtful  question 
whether  it  is  wise  or  has  been  wise  to  increase  the  average 
size  of  our  box  cars  beyond  possibly  80,000  pounds,  because 
there  is  so  much  of  the  time  that  we  have  to  haul  the  extra  dead 
weight  without  any  additional  load. 

Q.  And  as  a  matter  of  practice  has  not  the  minimum  in 
one  instance  or  another  been  reduced?    A.    It  has. 

Q.  Either  through  the  demands  of  the  shippers  or  through 
regulations?  A.  Not  so  much,  as  far  as  the  Interstate  Com- 
merce Commission  is  concerned,  but  by  the  various  States, 


19 

yes,  very  largely.  The  practical  unit  of  sales  as  to  many  items 
is  the  carload,  and  there  has  been  a  great  indisposition  on  the 
part  of  the  shipping  public  to  increasing  the  minimum  carload, 
so  in  manv  cases  we  are  obliged  to  use  a  car  which  will  carry 
80,000  pounds  for  a  25,000  or  30,000  pound  load. 

Q.  That  is  true  on  the  main  line,  while,  as  I  understand  you, 
on  your  branch  lines  these  so-called  economies  never  have  been 
in  effect  ?    A.    "Well,  only  to  a  limited  extent. 

Q.  Is  that  all  you  care  to  say  about  the  question  of  ma- 
terial and  its  cost?    A.     Nothing  else  occurs  to  me. 

Increase  ix  Taxes. 

Q.  Now  as  to  taxes  in  the  past  and  in  the  future,  has  there 
been  an  increase  in  your  burden  in  that  respect?  A.  A  very 
great  increase.  Our  taxes  are  100  per  cent,  greater  than 
they  were  15  years  ago.  I  do  not  tnow  exactly  what  that 
figures  per  mile,  I  do  not  know  that  we  have  any  statement, 
but  there  has  been  a  very  large  increase  and  it  is  constantly 
going  on. 

Q.  "What  recent  increase  in  taxes  has  been  notable?  A.  As 
I  recollect  it,  our  taxes  for  the  fiscal  year  just  ended  the 
30th  day  of  June  last  were — what  was  that  increase  Mr. 
Bailey  f  You  have  it  there  somewhere.  I  think  it  was  $400,- 
000,  but  there  was  a  very  large  increase  in  our  taxes  for  the 
year. 

Mr.  Bailey.  It  was  $250,000  on  account  of  the  income  or 
corporation  tax. 

Mr.  EiPLEY.  The  corporation  tax  alone  amounted  to  $250,- 
000  and  then- 
Mr.  XoRTOx.  The  taxes  on  the  Atchison  proper  of  the  sys- 
tem in  1910  were  $2,582,554.71?  A.  Those  are  not  the  System 
figures,  are  they? 

Q.  That  is  the  Atchison  proper.  A.  Have  you  them  for 
the  System? 

Mr.  Bailey.  I  would  be  glad  to  give  them  to  you  when  I 
find  them. 

Mr.  EiPLEY.  I  have  it  in  mind  that  our  taxes  last  year 
were  $400,000  in  excess  of  the  year  before,  which  were  larger 
than  they  ever  had  been  before  that;  but  I  will  not  vouch  for. 
those  figures. 

Mr.  Bailey.  For  the  year  before  they  were  $3,000,000  for 
the  entire  system. 


20 

Mr.  Norton.  The  taxes  for  1909  were  $3,000,000  for  the 
entire  system. 

Mr.  Bailey.  You  are  safe  in  saying  $-1:00,000,  because  tliere 
was  $250,000  for  the  corporation  tax. 

Mr.  KiPLEY.  T  think  it  was  $25(),()()0  besides  the  corporation 
tax,  but  we  will  furnisli  that  information  later. 

(Note:    System  taxes  for  1910  amount  to  $4,006,418.83.) 

Expenses  of  Regulation. 

Mr.  Norton.  In  addition  to  this  increase  of  tax  l)urden, 
what  others  have  you  in  the  way  of  safety  appliances  and 
expenses  of  regulation,  and  so  forth?  A.  Well,  safety  ap- 
pliances are  demanded  by  tlie  luiblic  and  they  are  demanded 
by  the  Interstate  Commerce  Commission.  I  have  no  quarrel 
with  that,  we  are  just  as  anxious  to  furnish  them  to  the  ex- 
tent of  our  means  as  anybody  is  to  bave  us  furnish  them. 
Our  expenses  of  regulation  or  what  you  might  call  our  ex- 
penses of  being  regulated  by  thirteen  States  and  the  National 
Grovernment  are  very  large.  I  do  not  know  that  I  can  make 
aji  accurate  estimate  of  the  amount.  It  probably  costs  us 
$150,000  a  year  to  be  regulated. 

Q.  Those  expenses  have  been  increasing  and  are  now  in- 
creasing?   A.    All  the  time. 

Q.  Do  you  want  to  say  anything  about  your  preparation 
for  putting  in  Ijlock  signals,  or  have  you  mentioned  all  you 
care  to  in  that  regard?  A.  Well,  we  have  a  very  large  amount 
of  block  signals  and  we  ought  to  have  them  over  all  of  our 
main  lines.  We  hope  to  have  them  some  time  if  we  earn  money 
enough. 

Q.  Of  course  it  goes  without  saying  that  the  money  that 
you  have  borrowed  from  time  to  time  has  entailed  a  larger 
expenditure  by  reason  of  interest,  your  interest  charges?  A. 
Yes,  sir.  Would  it  be  desirable  to  make  a  statement  as  to 
the  money  which  we  have  received,  that  we  have  borrowed 
in  the  last  fifteen  years?  I  say  fifteen  years  because  that 
is  the  time  the  present  company  took  hold  of  the  property. 
T  think  we  have  a  statement  showing  the  amount  of  money 
that  has  been  borrowed  and  what  has  been  done  with  it.  I 
guess  I  have  it  here.    I  think  this  is  it. 

Our  propertv  investment  in  1896  was  in  gross  figures  $372,- 
000,000.  It  has  grown  until  at  the  close  of  1910  it  was  $579,- 
000,000  plus,  practically  $580,000,000. 

The  income  applicalile  to  1)0]ids,  interest  dividends,  and  ap- 


21 

]n-opriations  for  improvements  has  grown  from  $2,432,000,  in 
round  figures,  in  1896, — that  is  half  the  vear,  ho^Yever, — sav  it 
has  grown  from  $6,000,000  in  1897  to  .$32,0()0,00()  in  1910. 

And  tlie  per  cent,  of  income  to  the  property  investment  has 
grown  from  1.57  in  1897  to  5.58  in  1910 ;  and  in  no  year  has  it 
exceeded  6.30. 

Q.     That  6.30  was  in  the  year  1907  ?     A.    Yes. 

Mr.  Thoene.  Pardon  me,  but  I  did  not  quite  get  the  in- 
come for  1910. 

Mr.  EiPLEY.     You  mean  the  income,  5.58  per  cent.? 

Mr.  Thorne.     The  total  amount  is  what  I  refer  to. 

Mr.  Ripley.  The  total  amount  is  $32,000,000,  as  I  read  it; 
it  is  $32,000,000  plus. 

Mr.  NoETox.  The  witness  is  reading  from  Santa  Fe  Ex- 
hibit 1. 

^Ir.  Thorne.     Oh,  I  thank  you. 

Mr.  Norton.  Only  twice  in  the  fifteen  years  you  speak  of 
was  6  per  cent,  reached?    A.    Yes,  sir. 

Q.  That  is  the  return  on  the  investment,  not  dividends ; 
the  return  on  the  investment.  I  think  that  is  all,  unless  you 
have  something  additional  to  say.  A.  I  think  of  nothing  else, 
so  far  as  I  am  concerned. 

Examiner  Brown.     Is  there  any  cross-examination? 

Cross-Examinat'wH  hy  Mr.  Ativood. 

Mr.  Atwood.  Mr.  Eipley,  what  was  the  la:st  issue  of  bonds 
authorized  by  the  directorate  of  your  company!  A.  February 
or  March  last. 

Q.  What  were  the  bonds  styled  that  were  authorized  to 
be  issued  in  June,  1909?  A.  In  June,  1909,  it  was  a  convertible 
bond. 

Q.  What  was  the  designation  given  to  the  more  recent  au- 
thorized bonds,  if  any  were  issued?  A.  That  was  also  a  con- 
vertible bond. 

Santa  Fe  Stocks  and  Bonds. 

Q.  And  what  were  the  bonds  issued  last  before  the  con- 
vertilile  bonds  issued  in  June,  1909?  How  were  they  denom- 
inated? What  name  was  given  to  them?  A.  I  think  they 
were  transcontinental  short  line  bonds,  were  they  not  (ad- 
dressing Mr.  Bailey),  that  were  issued  last  before  that? 

Q.  Well,  Mr.  Ripley,  if  you  do  not  know,  simply  say  so. 
You  are  the  only  witness  now  being  examined.  If  it  is  a  fact 
that  you  do  not  know  that  is  all  I  desire  you  to  say. 


22 

Mr.  Norton.     He  can  ascertain  in  a  moment. 

Mr.  Atwood.  I  do  not  desire  him  to  translate  upon  the  wit- 
ness stand  under  oath  information  transmitted  to  him  by  his 
assistants. 

Mr.  Ripley.    It  is  a  matter  of  statistics. 

Q.  Very  good.  A.  I  cannot  recall  always  just  the  date  of 
the  issuing  of  the  bonds. 

Q.  I  have  no  fault  to  find  with  you,  if  you  do  not  know 
I  simply  wish  to  know  that  fact.  Now,  these  cervertible  bonds, 
as  I  understand  it,  are  convertible  into  stock  at  par?  A.  Yes, 
sir. 

Q.  What  was  the  provisions  governing  the  issue  of  the 
June,  1909,  bonds,  with  relation  to  the  per  cent,  above  or  be- 
low par  at  which  the  stockholders  might  receive  them  pro  rata? 
A.     They  were  offered  to  the  stockholders  at  102  and  interest. 

Q.  Are  you  sure  it  was  not  104?  A.  Are  you  speaking  now 
of  the  last  issue? 

Q.  No,  I  am  speaking  of  the  issue  of  June,  1909.  A.  Oh, 
1909, 1  think  it  was  104. 

Q.  And  some  were  taken?  A.  Largely  taken  by  the  stock- 
holders. 

Q.  Do  you  know  the  market  value  at  which  they  stand 
now?  I  ask  that  with  a  view  of  giving  the  Commission  and 
the  Examiner  some  information  of  the  standing  and  credit  of 
your  company.    A.    I  think  it  is  107. 

Q.  You  would  not  be  sure  it  was  108  and  a  fraction?  A. 
No,  I  would  not. 

Q.  How  about  the  other  convertible  bonds,  say  the  fifty 
year  convertible  at  June,  1955?  Do  you  know  how  they  stand 
in  the  eyes  of  the  public?    A.    I  think  I  do. 

Q.  Give  us  approximately  the  amount  at  which  they  sell? 
A.    About  101  or  lOU. 

Q.  Fifty  years  convertible,  that  is,  June,  1955?  A.  Yes, 
sir. 

Q.  You  are  quite  sure  they  did  not  sell  last  May  at  111  and 
a  fraction?  A.  I  am  quite  sure  that  those  bonds  did  not,  no, 
sir. 

Q.  Very  well,  we  will  have  to  criticise  Mr.  Finley  Barrel! 
&  Co.  in  their  citations  and  quotations.  Next  after  the  ten 
years  convertible,  June,  1917.  Do  you  know  how  they  stand 
in  the  eves  of  the  purchasing  public  or  how  they  stood  in  May, 
1910?    A.     Issued  in  May,  1910? 

Q.    No.    A.    When  were  they  issued? 

Q.     They  are  described  on  the  market  as  ten  year  converti- 


23 

ble  due  January,  1917.  That  is  the  designation  in  the  bond 
broker's  list.  A.  I  cannot  answer  your  question.  I  do  not 
know  what  the  market  value  is  of  them.  I  do  not  keep  posted 
on  market  values  very  much. 

Q.  If  it  was  113  and  a  fraction,  the  fact  that  one  of  your 
sets  of  bonds  sold  at  108,  had  to  be  sold  under  the  directorate 
provision  at  104,  and  the  other  sold,  or  stood  in  the  market 
May  last  at  111,  would  that,  in  your  judgment  as  a  financier, 
indicate  that  the  credit  of  the  company  was  injured  by  the 
situation?  A.  It  would  indicate  that  as  to  those  particular 
bonds  into  which  a  certain  gambling  speculative  element  en- 
ters, were  selling  at  a  good  price. 

Q.  I  regret  to  think  that  your  railroad  even  in  a  remote 
degree  lends  itself  to  gambling  interests.  A.  Whereas  our 
first  mortgage  bonds  are  selling  at  98,  which  are  much  better 
security. 

Q.  You  said  98.  When  was  the  quotation  98  as  you  noted 
it?    A.    Why  a  few  days  ago  I  saw  it. 

Q.  Do  you  remember  what  they  were  in  May  last?  A.  I 
do  not. 

Q.  W^ould  you  quarrel  with  the  statement  that  they  were 
then  99i?     A.     No. 

Q.  As  I  understood  you  this  morning,  you  said  that  the 
reason  for  the  difference  between  the  convertible  bonds  and 
those  that  you  quote  at  ninety-eight  and  a  fraction,  was  the 
convertible  characteristic  that  they  possessed?    A.    Yes. 

Q.  That  characteristic,  as  I  understand  you,  is  simply  that 
the  holder  of  those  bonds,  who  is  also  a  holder  of  the  stock, 
can  in  a  certain  ratio  transfer  the  bonds  into  the  stock?  A. 
He  has  the  right  at  certain  times  to  transfer  all  the  bonds 
he  holds  into  stock. 

Q.    Prior  to  1918?    A.    Yes,  there  are  certain  limitations. 

Q.  And  you  said  that  gave,  as  I  understood  it,  an  addi- 
tional value  to  the  bonds?    A.    Yes. 

Q.  Would  you  draw  from  that,  speaking  as  a  financier  and 
a  man  dealing  in  large  financial  matters,  would  you  draw  from 
that  fact  the  suggestion  that  the  public,  at  least  has  as  man- 
ifested by  your  stockholders,  had  less  confidence  in  the  stock 
than  in  your  bonds?     A.     No. 

Q.    You  would  not  draw  that?    A.    No,  I  would  not. 

Q.  Then  the  factor,  the  characteristic  of  the  bonds  that 
gives  them  a  peculiar  value,  is  the  fact  that  they  may  be  con- 
verted into  stock?  That  fact,  and  the  fact  that  they  are  read- 
ily taken,  does  not  to  your  mind  indicate  as  such  or  intimate 


24 

a  want  of  confidence  in  yonr  stock  as  much  as  in  those  bonds? 
A.     No,  sir.    Would  you  like  to  have  me  say  why? 

Mr.  Norton.     Yes,  exphiin. 

Mr.  KiPLEY.     Tlie  man  who  buys  tlie  bonds — 

Mr.  Atwood.     AVait  just  a  moment. 

Mr.  Norton.     1  want  the  witness  to  exphiin. 

Mr.  Atwood.  AVhen  you  desire  to  re-examine  him,  it  is  your 
privilege  to  have  him  answer  any  question  tliat  has  been  pro- 
})ounded  to  him  on  cross-examination. 

Mr.  Norton.  It  is  my  privilege  to  have  him  explain  any 
question  that  he  is  asked  now. 

Examiner  Brown.  Let  him  answer  and  then  ex[)lain.  Have 
you  answered,  Mr.  Kipley? 

Mr.  EiPLEY.  The  reason  those  bonds  command  a  higher 
price  than  our  first  mortgage  bonds,  although  they  are  a  sub- 
ordinate security,  is  that  a  man  is  assured, — so  long  as  the 
company's  credit  is  maintained, — he  is  assured  of  a  4  per  cent, 
return  on  his  investment,  and  he  has  the  possibility  of  a  spec- 
ulative rise  in  the  stock,  which  may  enable  him  to  sell  out  at  a 
profit. 

Q.  What  proportion  of  them  bear  5  per  cent  ?  A.  There 
is  a  small  issue,  I  have  forgotten  now  the  amount,  that  bears 
5  per  cent,  interest. 

Q.  So  the  fact,  to  recapitulate  and  to  set  ourselves  straight 
on  the  record,  or  at  least  let  me  follow  you  so  I  may  not  be  mis- 
led in  anything  you  say,  is  this :  You  think  that  the  converti- 
ble characteristic  is  no  indication  of  the  confidence  the  pub- 
lic may  have  in  your  stocks,  even  though  that  conversion  does 
take  place?    A.    I  didn't  say  that. 

Q.  All  right.  A.  I  did  not  mean  to  be  understood  as  say- 
ing tliat.  I  don't  think  I  did  say  it.  I  said  a  man  who  had 
a  i-easonably  sure  bond  return  of  four  or  five  per  cent,  and 
had  in  addition  the  possibility  of  being  able  to  exchange  it  for 
stock  that  is  now  paying  six,  had  that  large  gambling  chance  of 
making  some  money;  therefore  he  paid  more  for  the  bonds. 

Q.  How  about  the  conversions?  What  has  taken  place  in 
the  way  of  conversions!  A.  During  the  last  year  there  has 
been  quite  a  large  amount  of  our  convertible  bonds  exchanged 
for  stock. 

Q.  That  gamljling  element  was  an  element  so  far  as  an  in- 
crease took  place  in  the  buying  of  stock?  A.  When  the  stock 
sold  at  120  the  opportunity  tliat  the  convertible  bondholder 
had  been  waiting  for,  occurred. 


25 

Q.     And  the  stock  did  sell  at  120,  when!    A.    Last  winter. 

Q.  Is  that  sale  of  20  per  cent,  above  par  to  your  mind  as  a 
financier  any  indication  of  the  public  confidence  in  your  stock! 
A.  It  indicates  that  the  public  or  a  portion  of  the  public  had 
confidence  at  that  time. 

Q.     What  is  the  stock  selling  at  now!    A.    About  97  or  974. 

Q.  Are  you  sure  about  that,  or  simply  speaking  from  recol- 
lection of  what  sales  you  have  knowledge  of!  A.  I  have  not 
been  present  when  any  sales  were  made. 

Q.  I  understand,  but  you  stud}"  the  quotations,  I  take  it! 
A.     The  daily  quotations  indicate  about  97|^  or  possibly  98. 

Q.  AVlien  was  that  quotation  from  which  you  derived  your 
recollection  stated!  A.  I  think  last  night  or  the  night  be- 
fore. 

Q.  With  relation  to  the  intake  and  expenditures  of  your 
road,  one  of  the  items  of  expenditure  as  I  nnderstand  it,  and 
you  will  set  me  right  if  I  am  wrong  in  any  of  my  suppositions, 
is  the  maintenance  of  way  and  structures.    A.    Yes. 

Maintenance  of  Eoad. 

Q.  What  is  the  policy  of  your  company  with  regard  to  ex- 
pending sun]s  sufficient  upon  the  maintenance  of  ways  and 
structure  so  as  to  leave  them  substantially  at  the  end  of  the 
fiscal  year  in  the  same  physical  condition  they  were  at  the 
beginning  thereof!  A.  Our  policy  has  been  to  expend  all  of 
our  surplus  earnings  in  that  direction  and  practically  as  much 
more  as  we  can  borrow  safely. 

Q.  You  will  pardon  me,  but  that  does  not  quite  answer 
my  question.  The  question  was  w^hether  or  not  it  was  the 
policy  of  your  company  to  expend  sufficient  upon  maintenance 
of  way  and  structure  so  as  to  leave  them  at  the  end  of  the  fiscal 
year  in  substantially  as  good  physical  condition  as  they  were 
at  the  beginning.  A.  W^e  should  be  very  sorry  if  we  did  in 
any  fiscal  year  only  as  mucii  as  that,  only  to  leave  them  in  as 
good  condition  as  they  were,  because  if  we  had  pursued  that 
policy  for  the  last  15  years  we  could  not  have  held  ourselves 
together  at  all. 

Q.  Am  I  to  infer  from  that  answer  that  you  not  only  do 
expend  sums  sufficient  to  maintain  them  in  as  good  physical 
condition,  hut  to  leave  them  in  better  physical  condition  at  the 
end  of  the  fiscal  year  than  they  were  at  the  beginning!  A. 
Certainly. 


26 

Q.  So  that  the  property  does  not  deteriorate?  A.  "We  hope 
not. 

Q.  So  then  when  $5,708,000  was  expended  in  the  fiscal  year 
ending  June  30th,  1909,  sufficient  sums  were  expended  that  year 
to  leave  your  physical  property  in  as  good  or  better  condition 
than  it  was  at  the  beginning  of  that  year?  A.  I  have  made 
my  remarks  general  and  not  specific.  When  you  ask  about  the 
year  1909,  I  should  say  yes.  There  have  been  some  years  how- 
ever when  I  do  not  think  we  quite  did  that. 

Q.  Of  course,  we  cannot  take  every  one  of  the  years,  so  I 
took  the  one  most  recent,  because  as  I  understand  it,  Mr. 
President,  you  have  not  in  print  your  annual  report  of  1910. 
A.    Not  yet. 

Q.  I  suppose  it  is  in  manuscript.  A.  Well,  yes,  all  the 
necessary  tigures  are  in  mianuscript. 

Q.    And  are  of  course  available  to  you?    A.    Yes. 

Q.  Will  you  be  gjDod  enough  to  produce  them  here  before 
the  Examiner,  so  we  can  have  an  opportunity  to  inspect  them  ? 
A.  Well- 
Mr.  Norton.  They  are  not  ready  for  issuance  to  the  public, 
are  they?  A.  It  is  not  quite  readv  for  issuance  to  the  pub- 
lic. 

Mr,  Atwood.  It  just  occurs  to  me  that  the  President  of  the 
company  might  be  a  better  judge  than  even  his  counsel  as  to 
whether  or  not  the  papers  appertaining  to  his  company  are 
ready  for  exhibition.  A.  My  hesitancy  is  due  to  the  fact  that 
I  do  not  think  the  figures  are  ready  for  issuance  to  the  pub- 
lie.  But  any  information  on  that  point  that  is  wanted  by  you 
or  the  Examiner  or  anyone  else  will  be  cheerfully  forthcom- 
ing. 

Q.  Your  gross  income  and  revenue?  A.  In  round  figures  it 
was  $105,000,000, 

Q.  By  the  way,  you  said  any  figures  that  are  available  would 
be  forthcoming,    A.    Yes, 

Q,  But  do  I  infer  from  that  that  you  do  not  know  now 
what  those  figures  are?  Your  gross  earnings  you  have  al- 
ready stated,  so  that  is  forthcoming,    A.    Yes. 

Q.  x\nd  sums  expended  for  maintenance  of  way.  A.  I 
do  not  know  that  the  maintenance  of  way  expense  has  been 
absolutely  put  into  figures  as  yet  and  corrected. 

Q.  How  about  equipment,  A.  The  same  is  true  of  equip- 
ment.   I  think  we  can  give  them  before  the  hearing  is  over. 

Mr.  Norton.  The  Auditor  tells  me  they  are  not  all  made 
up-  I,    . 


27 

Examiner  Brown.     They  are  generally  required  to  be  in 
about  60  days  from  the  1st  of  July,  are  they  not? 
Mr.  Norton.    October  1st. 

Examiner  Brown.  They  are  required  to  be  on  file  with  the 
Commission  by  October  1st.  I  do  not  know  whether  the  fig- 
ures are  in  such  shape  that  they  can  be  used  before  that  time 
or  not. 

Mr.  EiPLEY.    I  think  so. 

Examiner  Brown.  If  they  are,  you  will  kindly  furnish 
them. 

Mr.  EiPLEY.    I  will. 

Mr.  Atwood.  Will  you  indicate  a  time  when  you  will  di- 
rect your  subordinates  to  furnish  them  to  counsel?  A. 
If  you  will  indicate  what  you  want. 

Q.  Gross  earnings  and  gross  expenditures,  the  differentia- 
tion of  your  gross  expenditures  into  expenditures  for  main- 
tenance of  way  and  equipment,  and  sums  paid  for  interest 
and  dividends ;  in  other  words,  so  far  as  your  figures  disclose 
those  things  required  by  the  statute  governing  such  matters 
for  the  direction  of  the  Interstate  Commerce  Commission. 
A.    We  will  furnish  them  before  the  hearing  is  over. 

Q.  That  is  a  little  indefinite,  since  I  think  none  of  us  know 
just  how  long  it  will  take.  If  they  are  all  ready,  would  there 
be  any  harm  in  asking  you  to  furnish  them  tomorrow?  A. 
No,  there  is  no  objection,  with  this  qualification,  that  those 
figures  are  liable  to  slight  corrections;  they  will  be  substan- 
tially correct,  but  the  whole  business  has  not  been  checked  up 
yet  and  they  are  liable  to  certain  corrections  which  we  may 
want  to  make  later. 

Examiner  Brown.  You  will  file  them  subject  to  the  qualifi- 
cations that  they  are  substantially  correct  subject  to  check- 
ing and  correction  later  on? 

Mr.  EiPLEY.  The  corrections  will  be  very  slight. 
Mr.  Norton.  The  main  point  is  that  the  independent  audi- 
tors are  now  working  on  them,  the  Independent  Auditing  Com- 
pany which  looks  over  our  figures  after  our  own  auditors  are 
through  with  them.  They  are  not  through  with  the  computa- 
tions.   You  can  have  most  of  them. 

Mr.  Atwood.  All  right  I  will  be  greatly  obliged  to  you  and 
your  President  for  replying  to  our  request. 

How  much  of  the  item  appearing  on  page  6  of  your  annual 
report  for  the  year  1909  which  indicates  as  follows:  Ap- 
propriations for  additions  and  betterments  expended  during 
the  year,  meaning  of  course  the  year  ended  June  30th,  1909, 


28 

for,  of  course,  additions  and  l)ettermeiits,  ^4,000,000 — was  tha^- 
iiiaiiiteiianoe  of  equipnieut  and  maiiiteiianee  of  way,  or  was 
it  an  additional  expenditure?  A.  It  was  additions  and  better- 
ments as  is  stated  there  in  distinction  from  ordinary  main- 
tainance  expenses.  That  is  for  the  chiss  of  expenditures  that 
[  testified  to  this  morning;  that  is  the  class  of  expenditures 
that  ought  not  to  be  capitalized,  the  expenditures  that  are  in 
the  border  land  as  you  might  say  between  operating  ex- 
penses and  capital  expenses. 

Q.  Do  you  count  that  when  made  those  investments  when 
made,  as  part  of  your  assets?  A.  Not  in  figures  no.  We  do 
not. 

(,).  How  are  tliey  kept  upon  your  l)ooks  if  they  are  not 
carried  to  capital  account?    A.    They  are  written  off. 

Q.    Written  off?    A.    Written  off  to  cost  of  property. 

Q.  Then  those  are  sums  of  money  taken  from  your  revenue 
used  in  a  way  that  seems  to  you  good  and  then  as  you  say  writ- 
ten off  or  eliminated  from  your  l)Ookkeeping  entirely?  A. 
Yes. 

Q.  But  it  is  paid  for,  but  whatever  your  bookkeeper  may 
do  with  it,  and  it  is  paid  for  out  of  the  revenues  of  the  com- 
pany?    A,     Oh,  yes. 

Q^.  Then  this  $4,000,000  you  expended  for  betterments  and 
additions  is  a  sum  quite  apart  from  the  $12,000,000  that  you 
expended  for  the  maintenance  of  ways  and  $13,000,000  and 
odd  that  you  expended  for  the  maintenance  of  equipment  that 
year?    A.    That  is  so. 

Q.  So  that  those  millions,  the  $12,800,000  odd  expended 
for  maintenance  of  way,  and  $13,900,000  and  odd  expended 
for  maintenance  of  equipment,  together  with  this  $4,000,000, 
are  sums  taken  from  your  gross  earnings  that  year?    A.    Yes. 

Q.  Now,  then,  I  find  here  an  item.  Reserve  for  Future  Ex- 
penditures, $5,000,000;  that  was  the  crea.tion  of  a  fund  dur- 
ing that  vear  or  at  least  at  tlie  end  of  tlie  fiscal  vear  1909  of 
$5,000,000?     A.    Yes. 

Q.  Does  your  recollection  serve  you  as  to  what  amount 
was  devoted  to  a  similar  fund  or  to  the  same  fund  in  the 
fiscal  year  ])ri'or,  1908?    A.    No,  it  does  not. 

Q.  You  do  not  recollect?  A.  I  can  answer  your  question 
from  the  reports. 

Q.  I  understand,  and  ]^erhaps  it  would  be  more  expert  than 
you  would  l)e,  conseiiuently  we  will  leave  it  to  your  account- 
ant, if  he  desires  to  testify  upon  that  i)oint.  Does  your  recol- 
lection serve  j^ou  sufficiently  so  you  know  whether  the  amount 


29 

is  approximately  the  same  or  more  or  less?  A.  I  do  not 
recollect  what  the  figures  were. 

Q.    Well,  even  approximately? 

(Mr.  Norton  here  hands  witness  paper.) 

Mr.  Atwood.  Mr.  Comisel,  please  do  not  hand  the  wit- 
ness any  papers  nntil  he  asks  for  them. 

Mr.  Norton.  He  has  a  right  to  refer  to  the  annual  re- 
ports. 

Mr.  Atwood.  If  he  made  them,  yes.  The  report  you  have 
in  your  hand,  did  you  compile  it  yourself? 

Examiner  Bbown.  It  is  sworn  to  and  required  by  the  stat- 
ute to  be  on  file  with  the  Commission,  and  it  is  evidence. 
Proceed. 

Mr.  Atwood.  But,  Mr.  Examiner,  if  it  is  evidence,  it  is  not 
necessary  for  him  to  read  it  in  the  record.  If  they  desire 
to  present  testimony  that  is  sworn  testimony  and  documentary 
testimony  it  is  for  them  to  present  it  if  they  desire,  and  it  is 
entirely  within  the  proprieties  for  me  to  test  the  recollection 
of  the  witness  as  to  the  matters  and  things  over  which  he 
has  chief  dominion,  and  I  think  I  have  a  riglit  to  do  so  without 
liis  assisting  his  recollection  from  evidence  that  is  not  in  the 
record. 

Examiner  Browx.    Proceed. 

Mr.  Norton.  I  do  not  think  he  has  a  right  to  do  anything 
of  the  sort.  I  think  the  Commission  has  repeatedly  allowed 
us  to  refer  to  annual  reports.  You  are  using  one  there,  and 
now  you  ask  what  he  did  in  1908,  and  I  hand  him  the  annual 
report  for  that  year — 

Mr.  Atwood.  Counsel  is  unfortunate  in  his  powers  of  recol- 
lection. What  I  said  is  what  was  your  recollection  with  re- 
lation to  these  things. 

Mr.  Norton.  And  the  Commission  has  said  that  it  is  next 
to  nonsensical  to  ask  a  man  to  remember  such  a  thing. 

Mr.  Atwood.  Perhaps  it  is  true,  although  I  doubt  if  the 
Commission  ever  adopted  the  unhappy  phraseology  my  friend 
employs,  because  the  Commission  is  composed  of  gentle- 
men— 

Examiner  Brown.  Well,  we  are  not  getting  an\^iere,  let 
us  proceed. 

Mr.  Atwood.  What  I  desire  is  to  be  permitted  to  test  the 
recollection  of  the  witness  in  these  generic  ways.  Of  course 
I  am  not  asking  for  figure  details,  but  I  have  a  perfect  right 
to  ask  if  he  recollects  these  things. 


30 

Examiner  Brown.  And  lie  has  a  perfect  right  to  say  that 
he  does  not.    Proceed. 

Mr.  Atwood.  Now  then,  aiding  your  recollection  by  the 
contraband  that  is  in  your  hand,  tell  us  what  the  fact  is  as 
to  the  amount  that  was  devoted  to  this  fund  that  in  1909,  for 
the  fiscal  year  ending  June,  1909,  was  $5,000,000  of  reserve 
for  future  expenditures!  A.  There  was  $340,000  written  off 
for  additions  and  betterments;  there  was  $975,000  written  off 
on  account  of  discounts  on  bond  sales  and  other  expenses 
there  was  $618,000  written  off  on  account  of  grade  revision 
work,  being  for  line  abandoned — 

Examiner  Bkown.    What  is  the  total? 

Mr.  Ripley.     The  total  is  in  round  numbers  $1,800,000. 

Mr.  Atwood.  As  I  heard  you  read,  Mr.  Witness,  you  speak 
of  charging  off.  You  would  hardly  charge  off  anything  until 
there  had  been  some  disposition  made  of  the  fund  that  we 
are  considering,  would  you!  I  am  talking  about  reserve  set 
aside  for  future  expenditures,  that  is  the  way  you  describe 
it  in  your  reports.  Now,  I  ask  you  what  was  the  amount  that 
you  set  aside  under  that  designation  for  the  fiscal  year  1908! 
A.     Nothing. 

Q.    Nothing  at  all!    A.    No,  sir. 

Mr.  Norton.  Is  that  the  reason  you  did  not  want  him  to 
get  the  book? 

Mr.  Atwood.  I  am  not  at  all  sure  that  is  the  fact.  Since 
the  infirmities  of  your  witness'  recollection  are  such  that  he 
has  to  refer  to  documents,  it  makes  me  think  he  may  be  pos- 
sibly mistaken  after  all.  Have  you  any  recollection  as  to 
what  if  any  sums  were  set  aside  for  a  similar  purpose  the 
year  before!    A.    I  have  not. 

Q.  The  $4,000,000  expended  for  betterments  and  additions, 
this  $5,000,000  fund  set  aside — and,  by  the  way,  have  you  any 
recollection  as  to  what  was  done  with  relation  to  this  head- 
ing, what  disposition  of  any  fund  was  made  as  to  making  an 
addition  for  this  year  1910',  or  have  you  no  recollection!  A. 
There  has  been  nothing  done  about  it  as  j^et.  The  income  for 
this  year  is  subject  to  future  action  of  the  Board.  That  will 
appear  when  the  report  is  made  out. 

Q.  Is  there  any  time  created  by  the  customs  of  your  com- 
pany as  to  when  the  disposition  is  made  of  the  funds  resultant 
from  any  year's  operations!     A.     September  of  every  year. 

Q.  In  the  coming  month  it  will  be  determined  what  if  any 
portion  of  vour  gross  revenues  will  be  set  apart  for  that  fund? 
A.    Yes. 


31 


Not  Funds  Enough. 


Q.  Have  you  in  mind  any  purpose  yon  may  have  in  that 
regard,  since  the  funds  are  already  in  your  possession?  A. 
We  have  purposes  already  for  many  times  the  amount  avail- 
able. 

Q.  That  is  the  unfortunate  fate  of  all  of  us;  very  few  of 
our  incomes  equal  our  desires.  But  the  question  is  whether 
or  not  you  have  in  mind  any  j^articular  sum  you  think  will  be 
set  aside  out  of  gross  revenues  of  your  company  under  the 
head  "reserve  for  future  expenditures?"  A.  There  will  be 
a  very  small  amount  to  set  aside,  there  will  be  about  $2,500,- 
000  to  set  aside. 

Q.  Is  it  the  purpose  of  the  company  to  so  dispose  of  it? 
A.     I  cannot  answer  until  the  directors  have  acted  on  it. 

Q.  But  as  you  understand  the  purposes  of  the  board— 
A.    I  do  not  care  to  forecast  the  action  of  the  board. 

Q.  Ven,'  good,  I  recognize  the  modesty  which  actuates  your 
answer. 

This  fiscal  report  for  the  year  ending  June  30th,  1909, 
discloses,  as  I  read  it,  twenty  millions  and  more  of  dollars  that 
were  devoted  to  the  paying  of  dividends  on  preferred  and 
common  stock,  $4,000,000  fo"r  betterments,  and  $5,000,000  for 
the  reserve  to  be  expended  in  the  future;  and  those  items,  of 
course,  are  exclusive  of  any  interest  that  was  paid  upon  your 
bonded  debt.  A.  If  you  have  read  your  figures  correctly, 
yes. 

Q.  I  have  tried  to  read  them  correctly  and  simply  name 
the  items  rather  than  to  expect  you  to  recall  the  amounts. 
A.    Yes. 

Q.  So  that  these  sums  for  dividends  for  common  stock  and 
dividends  for  preferred  stock,  $4,000,000  for  betterments,  and 
$5,000,000  for  future  expenditures,  were  sums  extracted  from 
the  gross  revenues  of  your  company  in  addition  to  the  inter- 
est on  the  bonds  that  was  paid?    A.    Yes. 

MoEE  About  Value  of  Secukities. 

Q.  Now,  you  mentioned  perhaps  on  more  than  one  occasion 
during  your  testimony,  that  something  less  or  perhaps  a  bit 
more  than  6  per  cent,  had  been  the  result  of  the  earnings  of 
the  company  for  a  series  of  years.    A.    I  did. 

Q.    Including  of  course  the  bonded  indebtedness.    -A.    Yes. 

Q.  Since  your  bonded  indebtedness,  with  the  exception  of 
this  small  issue  of  5's  which  you  spoke  of  a  half  hour  since, 
only  calls  for  4  per  cent.,  it  would  hardly  be  expected  that 


32 

you  would  force  upon  your  ])ondliolders  a  greater  rate  of  in- 
terest than  tliat  nominated  in  the  bonds?  A.  We  have  no 
such  intention. 

Q.  Consequently  the  fact  that  you  have  been  able  to  float, 
as  j^ou  have,  and  carry  on  the  market  at  least  a  portion  at 
110  or  113  of  those  bonds,  all  of  which  l)ut  a  small  portion 
bear  4  per  cent,  interest,  is  that  to  your  mind  as  a  financier 
dealing  in  large  matters,  in  any  wise  indicative  of  the  credit 
of  your  company?  A.  It  indicates  that  at  one  point  of  our 
history  our  credit  was  very  good. 

Q.  Do  I  understand  you  desire  now  to  be  understood  as 
saying  that  the  credit  of  your  company  is  at  a  low  ebb?  A. 
The  market  would  indicate  it  is  not  as  good  as  it  was. 

Q.  And  you  speak  of  it  now — I  am  now  asking  your  opinion 
based  upon  any  knowledge  you  may  have  derived  from  the 
market,  or  your  knowledge  of  the  management  of  your  com- 
pany and  the  condition  of  its  property,  whether  or  not  you 
consider  that  it  is  entitled  to  much  or  little  credit.  A.  In 
order  to  answer  that  question  I  should  have  to  be  gifted  with 
more  foresight  than  I  feel  that  I  have.  It  depends  a  good  deal 
upon  what  is  done  with  us  by  the  pul^lic. 

Q.  Now,  then,  the  stocks  during  the  fiscal  year  ending 
June  30th,  1909,  received  dividends,  5  per  cent,  each,  both 
preferred  and  common  stock?    A.    Yes. 

Q.  The  interest  on  all  the  bonds  was  paid,  that  is  a  fact,  is 
it  not?    A.    Oh  Yes. 

Earnings  and  Expendituees. 

Q.  And  these  expenditures  which  I  have  adverted  to  have 
also  taken  place.  Now,  then,  do  you  recollect  how  the  gross 
or  total  operating  revenue — to  employ  the  phraseology  of  your 
o^Ti  accountant — how  they  compare  in  1909  with  1908,  as  to 
whether  they  were  greater  or  less?    A.    1909  and  1908? 

Q.  1909  with  1908.  A.  My  recollection  is  they  were  con- 
siderably larger. 

Q.  Do  you  recollect  how  the  expense—  A.  My  recollec- 
tion is  they  were  not  larger  per  mile.  "We  had  more  mileage, 
however. 

Q.  It  will  be  time  enough  to  take  up  the  miles  when  we 
get  to  them;  it  is  a  pretty  large  proposition  to  take  them  all 
at  once.  Whatever  it  is  per  mile,  you  have  to  have  the  gross 
anyhow.    A.    Yes. 

Q.  So  that  is  one  of  the  factors  proper  to  be  dealt  with? 
A.    Yes. 


33 

Q.  I  suppose  you  would  not  quarrel  witli  your  own  ac- 
countant's figaires,  if  they  stated  in  1909  there  was  a  gross 
operating  revenue  of  $94,265,000  as  against  $90,617,000  the 
year  before?    A.    No. 

Q.  Now,  do  you  recollect  how  the  expenditures  embraced 
in  your  own  terminology,  expenses,  including  taxes,  rentals 
and  other  charges — and  I  take  it  that  includes  all  the  ex- 
penditures of  your  company  apart  from'  dividends  and  extra 
expenses  we  have  been  talking  about?  A.  Yes.  But  what  is 
3'our  question? 

Q.  Tihe  question  was  whether  or  not  these  expenditures 
described  in  your  report  as  expenses,  included  taxes,  rentals 
and  other  charges,  were  intended  to  cover  all  expenditures 
except  the  dividends  and  those  sums  expended  for  betterments 
and  reserved  for  betterments?    A.    They  are. 

Q.  So,  then,  all  expenses  except  those  four  are  included 
in  the  term  "expenses,  including  taxes,  rentals  and  other 
charges?"    A.    Yes. 

Q.  Do  you  recollect  whether  or  not  those  expenditures 
were  greater  or  less  in  1909  than  they  were  in  1908?  A.  They 
were  greater. 

Q.  Are  you  quite  sure  of  that?  A.  Well,  I  think  they  are. 
I  am  not  sure. 

Q.  Of  course  you  can  only  speak  from  recollection.  There 
is  no  question,  is  there,  in  your  mind,  that  that  is  an  authentic 
document?  (Handing  copy  of  Annnal  Report)?  A.  I  should 
think  not. 

Q.  The  fact  that  it  bears  in  print  "compliments  of  E.  P. 
Eipley"  would  indicate  that  somebody  at  least  thought  that 
you  had  something  to  do  with  it?    A.    Yes. 

Q.  If  upon  page  6  of  that  report  bearing  the  legend  "Com- 
pliments of  E.  P.  Ripley,"  and  having  for  its  title  page,  "The 
P^'ourteenth  Annual  Report  of  the  Atchison,  Topeka  &  Santa 
Fe  Railway  Company  for  the  fiscal  year  ended  June  30th, 
1909" — if  on  page  6  of  that  report  we  find  the  following  ex- 
penses, including  taxes,  rentals  and  other  charges  for  190S, 
$65,031,000  and  m  1909,  $61,458,000,  would  you  be  constrained 
to  the  conclusion  that  the  expenses  for  the  year  1909  were  less 
than  they  had  lieen  for  the  preceding  year?    A.    I  should. 

Q.  Then  if  I  understand  you,  your  interpretation  of  this 
report  is  that  in  1909  the  gross  revenues  exceeded  those  of 
1908  by  the  difference  between  ninety-four  and  one-quarter 
million  dollars  as  against  ninety  ancl  three-quarter  million 
dollars,  while  the  expenditures  of  that  same  year  were  some- 


^NfVERstry 

OF 


thing  like  three  aud  one-half  million  dollars  less.  If  you  de- 
sire to  refresh  your  recollection  l)y  looking  [it  the  figures,  it 
is  your  privilege.    A.     That  is  all  right. 

Q.  Then  that  is  a  fact.  A.  That  appears  to  be  demon- 
strated. 

Q.  I  will  ask  you,  speaking  as  a  railroad  man  of  extended 
experience,  whether  or  not  when  a  railroad's  gross  revenues 
increase  from  one  year  to  another  while  that  same  company's 
expenditures  decrease  in  the  same  year  that  the  gross  rev- 
enues increased,  whether  or  not  that  is  an  indication  of  a 
healthy  or  an  unhealthy  condition  from  a  commercial,  a  trans- 
portation, or  a  railroad  standpoint?  A.  It  depends  entirely 
how  much  money  they  spend  and  how  much  they  ought  to 
have  spent. 

Q.  Is  that  the  only  answer  you  can  give  to  the  query?  A. 
Yes. 

Q.  And  the  only  one  you  are  pleased  to  give?  A.  No  one 
can  answer  that  ciuestion  intelligently  without  knowing  what 
money  was  spent  and  what  for. 

Q.  '  But  nobody  knows  better  than  E.  P.  Eipley  how  the 
moneys  of  the  Santa  Fe  were  expended  in  that  year?  A. 
Possibly  not. 

Q.    In  a  general  way.    A.    In  a  general  way. 

Q.  They  were  honestly  expended,  were  they  not?  A.  I 
hope  so. 

Q.  And  expended  to  the  very  best  of  the  ability  of  youi-- 
self  and  your  directors  and  your  subordinates?  A.  I  think 
so. 

Q.    And  in  whom  you  had  confidence?    A.    Yes. 

Q.  Speaking  in  the  light  of  your  knowledge  of  those  ex- 
penditures, which  you  say  is  the  determining  factor  in  per- 
mitting you  to  conclude  whether  or  not  the  railroad  is  in 
good  or  bad  condition  when  its  revenue  increases  and  ex- 
penses decrease,  please  answer  the  question  in  the  light  of 
your  knowledge  pertaining  to  this  road  you  are  President  of? 
A.  I  have  already  said  that  on  the  face  of  the  returns  that 
would  indicaite  a  very  healthy  condition. 

Q.  Do  you  know  anything  behind  the  returns  which  indi- 
cates otherwise?  A.  I  know  we  did  not  spend  as  much 
monev  in  1909  as  we  might  and  ought  to  have  spent. 

Q.  ^  In  1909  you  expended  $4,000,000,  that  was  for  better- 
ments and  additions;  you  expended  sufficient  sums  for  the 
maintenance  of  way  and  equipment  to  keep  your  roads  in  as 


good  a  condition  and  leave  them  in  better  condition  than  they 
were  at  the  beginning  of  the  year?     A.    Yes. 

Q.  Now  then  the  expenditures  you  have  in  mind  that  shouhl 
have  been  made  are  of  what  nature?  A.  They  are  of  the 
chiss  that  I  testified  regarding  this  morning,  the  class  of  ex- 
penditures that  are  strictly  in  the  nature  of  improvements 
but  which  ou2:ht  to  be  paid  for  out  of  revenue. 

Q.    You  spent  $4,000,000  for  that?    A.    Yes. 

Q.  What  points  on  your  line  demand  expenditures  in  ex- 
cess of  $4,000,000,  or  did  in  that  year,  of  the  character  3^ou 
speak  of?  A.  I  could  not  name  them,  but  there  are  scores 
or  perhaps  hundreds  of  them. 

Q.  In  other  words,  you  could  spend  money  to  put  your 
road  in  better  condition  than  it  now  is  or  in  which  it  was  at 
the  end  of  the  fiscal  year  1909,  is  that  it?  A.  We  need  to 
spend  money  for  a  thousand  and  one  things  that  the  public 
demand  of  us  and  which  we  cannot  give  at  the  moment. 

Q.  And  as  you  compute  the  duties  of  a  carrier,  is  it  that 
there  shall  be  exacted  from  the  shipping  public  or  the  freight 
paying  public  sums  sufficient  to  maintain  your  ways  and  your 
equipment  in  better  condition  at  the  end  of  each  yeai^  than 
it  was  at  the  beginning  of  that  year,  and  in  addition  to  that 
spend  several  millions  of  dollars  in  additions  and  betterments, 
and  set  funds  aside  to  the  extent  of  $5,000,000  for  expendi- 
tures in  the  future,  for  which  of  course  you  cannot  now  state 
what  it  will  be,  and  pay  interest  on  all  your  bonded  indebted- 
ness and  a  dividend  of  five  per  cent,  on  preferred  and  com- 
mon stock,  and  still  think  that  there  should  be  further  sums 
exacted  from  the  freight  paying  public!  A.  I  do,  most  de- 
cidedly. 

Q.  Xow.  then,  is  that  conclusion  at  which  you  so  readily 
arrive  due  to  the  fact  that  you  do  or  do  not  consider  the  cost 
of  transportation  as  a  factor  of  any  moment  whatever?  You 
spoke  of  it  lightly  this  morning,  but  still  gave  it  some  con- 
sideration.   A.    I  did. 

Q.  The  cost  of  transportation?  A.  Well,  I  do  not  know 
that  I  understand  your  question.  Will  you  please  state  it 
again. 

(The  question  was  then  read.) 

Q.  My  question  is  rather  long  and  involved  and  stiltedly 
framed.  A.  You  have  taken  there  one  of  the  most  prosper- 
ous years  we  have  ever  had,  and  have  taken  all  the  items  that 
went  in  to  favor  that  side  of  the  case  without  any  of  the 
others.    It  is  true  we  had  last  year  a  surplus  over  and  above 


3fi 

dividends  of  about  $9,000,000  whicli  we  appropriated.  This 
Jast  year  we  will  have  less  tliau  $;),000,000  all  told,  and  in 
previous  years  we  have  had  even  less  than  that.  Now  the 
service  that  we  are  exi)ected  to  render  recjiiires  the  constant 
addition  to  our  j:>laiit  by  tlie  use  of  very  large  amounts  of 
money.  We  cannot  get  it  all  by  selling  ))onds.  Where  are  we 
going  to  get  itf 

Q.  Well,  it  just  occurs  to  me,  if  you  propound  to  me  the 
query  that  it  is  hardly  the  correct  thing  to  exact  from  the 
shippers  a  fair  return  to  you  for  the  service  you  perform  and 
in  addition  make  him  i^ay  to  build  you  new  railroads;  but 
since  I  am  not  on  the  witness  stand  my  answer  of  course  is 
of  little  avail.    Now  then — 

Mr.  Norton.  Wliy  sliould  he  not  l)uild  new  railroads,  if 
he  wants  him  to? 

Mr,  Atwood.  We  would  be  very  glad  to  have  him  do  so, 
but  do  not  want  him  to  rob  my  clients  to  do  it. 

Mr.  NoKTOx.  I  say  why  sliould  not  the  shipper  have  new 
railroads  if  he  wants  them! 

Mr.  Atwood.  They  should,  but  it  should  come  out  of  capital- 
ization and  not  out  of  earnings. 

You  were  good  enough  to  say  that  I  quoted  certain  figures 
from  an  extra  good  year  without  disclosing  other  things  on 
the  other  side  of  the  ledger  which  were  not  as  favorable.  Will 
you  be  good  enough  to  turn  to  any  portion  of  your  reports 
which  militates  against  the  conclusion  which  you  have  been 
obliged  to  draw!  A.  I  do  not  think  that  report  covers  the 
figures  of  previous  years  in  sufficient  clearness  to  enable  me 
to  do  that. 

Q.  Very  good,  I  am  quite  sure  that  is  true — 1908  and  1909 
are  the  only  years  covered.    A.    Yes. 

Q.  But  it  is  a  truthful  portraiture  of  the  condition  of  the 
road  at  the  end  of  the  fiscal  vear,  1909,  tliat  is  true,  isn't  it? 
A.    Yes. 

Q.  And  during  that  year  these  sums  of  money  were  ex- 
tracted taken  from  the  gross  revenues?     A.     Yes. 

Q.  And  in  that  year,  at  least  the  earnings,  the  gross  earn- 
ings, were  several  millions  of  dollars  more  and  tlie  total 
expenses  several  millions  of  dollars  less  than  they  had  been 
the  year  preceding?     A.     That  is  true. 

Q.  You  spoke  of  that  1)eing  a  banner  year;  how  about  your 
year  1907?    A.    1907  as  I  recollect  it  was  a  good  year. 

Q.  That  is  a  sort  of  double  lianner  year?  A.  That  is,  the 
year  ending  June  1907,  was  a  good  year. 


37 

Q.  Since  you  have  been  pleased  to  find  fault,  if  that  is  not 
too  harsh  a  term,  with  the  selection  of  the  year  1909,  supposing 
we  select  the  year  1907,  and  contrast  it  with  its  predecessor. 
A.    1907  was  a  very  good  year. 

Q.    An  extra  good  year?    A.    Yes. 

Q,  Now,  Mr.  Ripley,  have  you  sufficient  recollection  to  en- 
able you  to  say  whether  you  would  be  disposed  to  quarrel 
with  the  statement  I  have  in  my  hand  and  which  is  tran- 
scribed from  the  reports  of  the  Interstate  Commerce  Com- 
mission, that  discloses  that  in  1907  the  gross  revenues  over 
the  preceding  year  was  that  difference  that  lies  between  forty- 
seven  million  seven  hundred  thousand  odd  dollars,  and  seventy- 
six  million  six  hundred  thousand  odd  dollars!  A.  No,  that 
is  wrong. 

Q.  That  is  wrong.  Have  you  figures  before  you  that  you 
can  depend  upon,  bearing  upon  those  two  years!  A.  I  can 
give  you  the  net — • 

Q.  I  am  speaking  of  the  operating  revenue,  that  was  the 
designation  or  heading  dictated  by  order  of  the  Interstate 
Commerce  Commission,  which  your  road  had  to  fill  out,  and 
did,  and  filed  with  the  Commission,  and  which  I  think  is  here 
transcribed  correctly.  Of  course  there  is  a  possibility  of  mis- 
take.   A.    Are  you  talking  about  gross  earnings  now! 

Q.  I  am  talking  about  what  is  designated  as  operating- 
revenues.  Of  course  you  as  a  railroad  man  know  what  that 
is  better  than  I  do.  A.  That  is  gross  earnings  and  I  haven't 
it.  But  our  largest  net  income  took  place  in  the  years  1907 
and  1909.  Our  net  income,  which,  after  all,  is  what  tells  the 
story,  was  in  1907,  $32,724,000,  and  in  1909  $33,523,000. 
Those  were  the  net  income  figures.  I  think  possibly  you  have 
become  a  little  mixed  by  taking  Interstate  Commerce  returns 
there  because  we  report  separately  to  the  Interstate  Com- 
merce Commission  the  various  divisions  of  our  line,  and  then 
we  have  our  own  figures. 

Q.  This  is  headed,  ''Atchison,  Topeka  &  Santa  Fe  Railway 
Company,"  which  I  apprehend  is  the  corporation  proper  as 
contradistinguished  from  what  vou  call  the  Svstem!  A. 
Yes. 

Q.  I  would  ask  if  the  figures  which  you  have  before  you  are 
System  figures  or  Railway  figures!  A.  They  are  railway 
figures. 

Mr.  Lyon.  I  want  to  call  attention  to  the  fact  that  the 
figures  which  you  were  reading  were  system  figures. 


38 

Mr.  Atwood.  I  am  very  ,2;lad  to  he  set  right  on  that.  1 
was  simplj^  being  governed  by  what  I  saw  at  the  top  of  it. 
These  figures,  you  say,  are  wrong,  and  we  will  read  them 
again  for  the  purpose  of  being  set  right  if  we  can  be,  because 
we  both,  I  am  sure,  want  to  be  right.  They  disclose  that  in 
190G  the  operating  revenues — and  let  me  pause  to  ask  what, 
as  you  understand  railroad  bookkeeping,  what  operating 
revenues  cover,  gross  revenues?     A.     Gross  revenues. 

Q.    From  operation?    A.    Yes. 

Q.  Of  course  that  don't  include  any  outside  matters  like 
income  from  land  or  anything  like  'that?    A.    No 

Q  But  all  tliat  is  derived  from  the  operation  of  your  road, 
the  carriage  of  mails,  express,  passenger  and  freight  is  cov- 
ered by  the  heading,  "operating  revenues"?     A     Yes. 

Q.  Now,  as  my  transcript  shows,  in  1906,  those  operating 
revenues,  or  gross  operating  revenues  were  represented  by 
the  figures  $47,700,000  odd  dollars.  A.     That  is  wrong. 

Q.  And  in  the  year  1907  it  is  $76,000,000  odd  dollars.  A. 
I  do  not  know  what  those  figures  refer  to  but  they  do  not  re- 
fer to  system  earnings  at  all. 

Mr.  Bailey.  I  think  probably  if  the  gentleman  will  per- 
mit me  to  straighten  him  out,  I  can  do  so.  Formerly  the 
Atchison,  Topeka  &  Santa  Fe  Railroad  operated  east  and 
west  of  Albuquerque.  It  is  known  now  as  an  operating  sys- 
tem east  and  west,  the  main  line  being  divided  at  Albuquerque. 
Formerly  the  lines  west  of  Albuquerque  consisted  of  the  At- 
lantic and  Pacific,  Southern  California  and  San  Joaquin  Val- 
ley lines.  Those  were  added  to  the  Atchison  Company,  and 
for  a  year  or  two  after  they  were  bought  and  became  part  and 
parcel  of  the  Atchison,  Santa  Fe  &  Topeka  Railway  Company 
the  reports  to  the  Interstate  Commerce  for  the  lines  west 
thereof  were  made  independent  of  the  lines  east  thereof,  and  I 
think  a  combination  of  those  years  will  straighten  you  out  as 
to  that  wide  difference. 

Mr.  Atavood.  Have  you  before  you  the  figiires  of  the  gross 
income  of  the  system  for  the  years  1906  and  1907?  A.  No,  I 
have  not.    I  have  the  net. 

Q.     Now,  can  you — 

Mr.  NoRTOis^.    We  will  have  those  in  the  morning. 

Mr.  Atwood.  Can  you  look  at  this  transcription  and  deter- 
mine from  that  what  ])ortion  of  your  system  is  covered  by 
those  figures? 

Mr.  Bailey.  The  Atchison  consists  of  five  or  six  lines  of 
railwnv. 


39 

Mr.  Atwood.  Have  vou  figures  there  pertaining  to  1906  and 
1907? 

Mr.  Bailey.    Yes. 

Mr.  Atwood.  Would  you  be  good  enough  to  let  me  look  at 
them?    It  will  save  taking  up  again  in  the  morning. 

Mr.  Lyon.    Do  you  want  the  mileage  of  the  Atchison? 

Mr.  Atwood.    No,  the  gross  revenues  for  1906  and  1907. 

Mr.  Lyox.  I  can  give  you  any  information  you  want,  from 
the  figTires  that  the  Atchison  has  filed  with  the  Interstate 
Commerce  Commission. 

]\rr.  XoETOx.  Will  you  speak  a  little  louder,  Mr.  Lyon,  I 
cannot  hear  you. 

Mr.  Lyox.  I  say  I  can  give  you  any  information  as  to  the 
gross  earnings  for  the  Atchison  Eoad  as  filed  with  the  Inter- 
state Commerce  Commission,  and  also  the  gross  mileage. 

Mr.  Atwood.  What  I  want  is  the  gross  revenues  of  the 
Atchison. 

Mr.  Lyox.  The  gross  revenues,  the  operating  revenues, 
not  including  the  Coast  Lines  for  1906  were  $47,758,906. 

Mr.  Atwood.     Will  von  repeat  that  again? 

:\rr.  Lyox.    $47,758,906. 

Mr.  XoETOx     Not  including  the  Coast? 

Mr.  Lyox.    Tliat  does  not  include  the  Coast  Lines,  for  1906. 

Mr.  XoRTox.  Mr.  Eipley  was  giving  the  figures  for  the  sys- 
tem. 

Mr.  Atwood.  I  am  not  quarreling  with  the  witness.  How 
about  1907? 

Mr.  Lyox.  I  think  we  have  the  accurate  information  re- 
l")orted  by  the  road  For  1907,  including  the  Coast  Lines,  ap- 
parently according  to  the  statement  made  here,  the  operating 
revenue  was  $76,639,368. 

Mr.  Ripley.  That  includes  1,500  more  miles  in  one  case  than 
it  did  in  the  other. 

Mr.  Atwood.  Do  you  know  or  have  you  before  you,  or  will 
you  indicate  the  designation — 

Mr.  Lyox.     I  will  state  for  your  information  that  that  in 
eludes  1,900  miles  of  trackage,  additional  trackage. 

Mr.  Atwood.  Eeading  from  the  book  entitled  "The  Annual 
Report  of  the  Atchison,  Topeka  &  Santa  Fe  Railway  Com- 
pany, 1906  and  1907,"  that  was  so  courteously  fuiTiished  me 
hy  your  associate  or  assistant,  it  seems  to  me  that  the  figures 
— let  me  see  if  we  read  them  together  aright — the  earnings 
from  passenger,  freia:ht,  mail  and  so  forth,  shows  in  1906 
$76,044,000.    'a.    $78,000,000. 


40 

Q.  $78,000,000,  yes ;  while  in  1907  those  same  earnings,  that 
is,  earnings  for  those  same  items,  freight,  passenger  mail, 
express  and  so  forth —    A.    Yes. 

Q.  _  Shows  a  total  of  $93,000,000  as  against  the  $78,000,000. 
This  is  the  system  and  the  others  are  the  system.  A.  They 
include  a  great  deal  more  road 

Q.  Now,  do  I  understand  that  there  was  included  under 
the  name  "Santa  Fe  System"  more  miles  of  line  in  1907  than 
there  was  in  1906?    A.    Yes,  sir. 

Q.  Is  there  here  in  this  book  a  differentiation  so  that  you 
can  show  that?    A.    I  think  so. 

Q.  So  that  you  can  show  what  the  contrasted  earnings  were 
of  1906  and  1907  for  the  portions  covered  by  1906  in  this 
book?  A.  No,  but  I  think  the  best  way  to  get  at  that  would 
be  the  earnings  per  mile.  That  will  tell  the  whole  story. 
The  mileage  increases  year  by  year  and  of  course  the  gross 
earnings  increase. 

Q.    Yes,  and  the  total  expenses  increase.    A.    Yes. 

Q.  As  I  gather  from  Mr.  Bailey,  if  that  is  the  gentleman 's 
name — 

yiv.  NoRTOx.    Yes,  Mr.  Bailey. 

Mr.  Atwood.  You  haven't  in  your  report  here  any  such 
designation  as  would  enable  us  to  contrast  the  earnings  of 
that  portion  of  your  system  that  is  classed  as  system  in  1906, 
with  the  earnings  of  the  same  portion  of  the  system  in  1907? 
A.  No,  we  have  not.  We  have  the  earnings  per  mile,  how- 
ever, which  tells  the  same  story. 

Q.    Well,  perhaps.      , 

Mr.  Lyox.  The  earnings  per  mile  are  here  if  you  want 
them. 

Mr.  Atwood.  But  that  is  quite  apart  from  the  situation  we 
now  have. 

Factors  ix  Eeasoxable  Eate. 

Now,  then,  Mr.  Ripley,  coming  back  to  a  consideration  of 
what  we  started  to  touch  upon  a  little  time  since,  as  to  the 
magTiitude  of  this  factor  in  this  problem  that  is  described  as 
the  cost  of  transjiortation,  you  said  this  morning  that  it  was 
not  a  matter  of  grave  moment,  and  I  am  not  attempting  to 
quote  you,  but  how  much  of  a  factor  do  you  consider  that  to  be 
in  the  making  of  a  reasonable  rate?  A.  I  said  this  morning 
that  I  did  not  consider  it  a  ])ri7iie  factor;  that  while  it  might 
be  considered  a  factor  it  was  not  the  principal  factor  or  one 


41 

of  the  principal  factors  in  my  opinion,  looking  at  it  from  the 
standpoint  of  the  interests  of  the  public  regardless  of  the  in- 
terests of  the  railroads;  I  thought  that  was  altogether  sec- 
ondary. 

Q.  Do  you  give  it  any  consideration  at  all,  and  if  so,  how 
much  I  A.  I  am  obliged  to  give  it  very  serious  consideration, 
but  1  do  not  think  it  has  any  consideration — I  think  it  has 
very  little  consideration  in  the  making  of  the  rates, 

Q.  Now,  then,  if  that  is  a  fa<?t,  the  reasonableness  or  un- 
reasonableness of  a  rate,  as  I  understand  it,  and  the  way  it 
is  arrived  at  cannot  be  determined  in  any  way  except  in  the 
negligible  degree  by  considering  what  the  cost  of  that  trans- 
portation is!    A.     That  is  a  fair  proposition. 

Q.  If  that  is  true,  then  how  does  the  fact  that  your  figures 
increase  become  more  or  less  a  factor  to  be  considered  by 
the  Commission  in  determining  whether  a  rate  that  is  pro- 
posed is  reasonable  or  unreasonable f  A.  I  don't  think  it 
ought  to  be  considered  by  the  Commission  as  a  factor. 

Capitalizatiox  of  CoMPA]s;y. 

Q.  All  right  sir,  you  are  perfectly  consistent,  Mr.  Eip- 
ley.  Now,  with  relation  to  the  cost  or  capitalization  of  the 
road,  do  you  treat  those  two  term.s  as  synonymous?  Is  your 
capitalization  in  excess  of  your  cost?    A.    No,  sir. 

Q.  I  said  cost,  not  reproduction.  A.  I  don't  know  what 
the  road  cost. 

Q.  You  haven't  even  an  approximate  idea?  A.  I  haven't 
an  approximate  idea;  whether  you  want  me  to  give  approxi- 
mate ideas  as  evidence  or  not,  I  don't  know. 

Q.  The  approximate  truth  is  still  the  truth;  it  is  less 
exact  than  the  exact  truth,  that  is  all.  If  you  know  approxi- 
mately the  difference  between  cost  and  capitalization,  yoii  can 
give  it  to  the  Commission.  A.  I  know  approximately,  I  think. 
The  present  company  took  over  the  assets  of  the  old  company 
from  the  receivers  in  1896.  They  took  it  over  at  a  veiy 
drastic  reorganization,  which  reduced  the  fixed  charges  from 
$9,000,000  a  year  to  $4,500,000,  in  round  figures. 

Q.  How  about  the  capitalization?  A.  The  capitalization 
at  that  time  represented  what  I  should  call  the  cost. 

Q.    All  right.    What  was  it?    A.    You  mean  in  figures?  ^ 

Q.  Yes,  sir,  millions  of  dollars  of  stock,  if  you  can  approxi- 
mate it.  I  quite  recognize  that  vou  cannot  remember  all  those 
figures.     A.     Substantially  it  was  $114,000,000  of  first  mort- 


42 

gage  bonds,  $r)],000,000  of  adjustment  bonds,  $102,000,000  of 
l^referred  stock,  and  $100,000,000  of  common,  about. 

Q.  $200,000,000  of  preferred?  A.  No,  $100,000,000  or 
$102,000,00. 

Mr.  Lyon.    Wliat  was  that,  common? 

Mr.  Ripley.    No,  preferred. 

Mr.  Atwood.  About  $102,000,000  of  common?  A.  Some- 
thing over  a  hundred  millions  common.  I  am  speaking  from 
memory  and  those  figures  might  not  be  quite  exact. 

Q.  I  would  not  expect  them  with  exacting  particularity, 
yet,  at  the  same  time,  it  is  approximately  correct.  Now,  what 
I  desire  is  your  statement  in  connection  with  whether  or  not 
the  capital  stock  as  contradistinguished  from  total  capitaliza- 
tion, as  represented  by  stock  and  bonds,  whether  the  pre- 
ferred and  common  stock  was  representative  of  more  or  less 
or  the  actual  value  of  the  property  at  that  time?  A.  You 
mean  by  actual  value  what  the  money  was  tliat  had  actually 
been  spent  on  it. 

Q.  I  will  allow  you  to  use  the  word  value  as  you  please. 
It  is  a  pretty  common  word.  A.  I  think  that  the  value  was 
not  overstated  in  the  computation,  the  value  of  the  property. 

Q.  I  think  we  are  perhaps  at  cross  purposes.  I  liad  in 
mind  all  the  while  the  capital  stock;  the  capitalization  of 
course  embraces  bonds  and  stock.  There  were  bonds  to  the 
amount  of  $152,000,000  and  then  the  readjustment  bonds? 
A.    Yes. 

Q.  That  of  course  was  in  the  days  before  the  railway  com- 
panv  came  into  existence.     A.     $152,000,000? 

Q";  $152,000,000  it  is  here.  A.  What  date  was  that,  at  the 
time  of  the  reorganization? 

Q.  No,  this  speaks  of  the  general  mortgage  bonds.  Aren't 
those  the  ones?  A.  Those  have  been  increased  since.  You 
were  asking  about  the  time  of  the  reorganization. 

Q.  That  is  right,  sir,  and  I  am  glad  to  have  vou  set  me 
right.    A.    As  I  recall  it  I  stated  it  was  $114,000,000. 

Q.  Yes,  $114,000,000.  Then  there  were  the  readjustment 
bonds  issued  at  that  time.    A.    $51,000,000. 

Q.  That  would  be  approximately  $165,000,000  of  bonded  in- 
debtedness?   A.    Yes. 

Q.  Now,  did  the  two  issues  of  stock,  preferred  and  com- 
mon, represent  the  value  of  the  property  witliout  considering 
the  bonds,  or  did  you  have  to  take  into  consideration  the 
bonds  and  stock  together,  in  order  to  arrive  at  tlie  fair  measure 


of  the  value  of  the  property!  A.  Of  course,  we  had  to  take 
the  two  together. 

Q.  And  that  is  what  you  meant  wlieu  you  said  capital?  A. 
Yes,  surely. 

Q.  Then  at  the  risk  of  repeating,  I  will  ask  you  again 
do  you  think  that  the  bonds  and  stock  in  1896  fairly  repre- 
sented the  value  of  the  property?    A.    I  think  so. 

Q.    Now  those  bonds  that  were  put  on  the  market — 

Mr.  Lyox.  Does  the  witness  mean  it  does  not  represent 
anything  more,  but  represents  simply  the  exact  value  approxi- 
mately? 

Mr.  Ripley.  The  question  was  not  put  in  that  way.  He 
asked  me  if  I  thought  they  rejiresented  the  actual  value.  What 
I  meant  to  say  was  that  I  did  not  consider  that  the  capitaliza- 
tion was  in  excess  of  its  actual  value. 

Mr.  Atwood.    That  is  what  I  understood. 

Mr.  Lyox.    I  did  not  understand  the  answer. 

BoxDs  Sold  at  Discouxt. 

Mr.  Atwood.  All  right.  Those  bonds  were  put  upon  the 
market  how?  By  underwriters,  by  offers  to  stockholders,  hy 
commission  houses,  commission  sales,  or  how?  A.  Well,  both, 
but  they  were  usually  underwritten. 

Q.  Was  this  eight  million  or  seven  million — eight  million 
dollars,  I  think  you  said  was  the  amount  less  than  the  face 
of  the  bonds  that  actually  went  into  the  treasury  of  the  com- 
jDany?    A.    Yes. 

Q.  Did  that  go  to  pay  the  underwriters'  profits?  A.  I 
don't  know.  That  was  the  dit¥erence  between  the  par  value 
for  which  we  obligated  ourselves  and  the  amount  which  we 
a<»tually  got. 

Q.  In  other  words,  the  public  has  through  the  exactions 
that  went  to  your  revenues,  paid  interest  on  eight  millions  of 
dollars  that  you  have  not  got,  at  least  that  never  went  into 
the  property?  A.    Well,  if  you  put  it  that  way,  yes. 

Q.  Isn't  that  a  correct  way  of  putting  it?  I  don't  want  to 
put  it  any  way  that  is  not  right,  Mr.  Eipley.  A.  I  don't  think 
it  is  quite  the  right  way  to  put  it.  We  got  that  much  money 
less  because  we  got  the  money  on  the  best  terms  we  could,  and 
spent  it  as  honestly  as  we  could,  and  we  spent  it  for  the  bene- 
fit of  the  public. 

Q.  And  I  am  polite  enough  to  agree  with  you  in  all  those 
suggestions.  The  only  question  is  now  whether  or  not  we 
have  not  been  paying  interest  on  eight  million  dollars  that  we 
did  not  get  any  money  for.    A.    We  have,  yes. 


44 

Q.  And  you  have  got  most  of  that  from  the  public  to  pay 
it  with,  isn't  that  true!    A.    Yes,  we  have  earned  that. 

Q.  Yes.  The  disposition  of  the  stock  at  that  time,  was  it 
employed  in  taking-  up  other  stock,  or  was  it  sold  in  the  open 
market?  A.  In  part.  It  was  largely  employed  in  the  taking 
up  of  junior  bonds,  taking  up  income  bonds,  and  second  mort- 
gage bonds. 

Q.    Was  the  stock  used  at  par  for  that  purpose?    A.    Xo. 

Q.  No?  A.  The  stockholders  were  assessed  and  were  given 
a  certain  quantity  of  stock  and  a  certain  quantity  of  bonds 
for  the  assessment.  The  bonds  and  preferred  stock  tliat  were 
issued  at  that  time  were  issued  for  cash  paid  by  an  assess- 
ment on  the  stockholders. 

Q.  As  a  result  of  all  that,  there  was  a  new  issue  of  stock, 
some  common  and  some  preferred!  A.  Yes.  But  the  total 
capitalization  and  the  total  stock  issued  was  much  less  than  it 
was  before. 

Q.  Of  course,  I  am  not  quarreling  with  the  old  company. 
That  had  ceased  to  exist.  That  was  the  old  railroad  company 
and  this  railway  company  is  an  entirely  new  entity.  When  this 
was  born  a  statement  went  into  the  hands  of  the  public,  whether 
the  bondholding  public  or  otherwise.  Now,  what  I  desire  to 
know  is,  if  your  recollection  serves  you,  how  much  of  the 
bonds,  junior  bonds  or  otherwise,  or  money  or  both,  was  rep- 
resented, what  percentage  of  those  things  was  represented  by 
stock  that  was  issued?  Was  it  dollar  for  dollar  of  new  stock 
that  went  for  those  things,  or  was  it  below  par?  A.  If  I  un- 
derstand what  you  mean,  perhaps  I  can  give  you  an  idea  of 
the  organization,  that  will  answer  that  question. 

Old  Company  Eeoeganized. 

Q.  Very  good.  A.  The  first  mortgage  bondholders,  who 
had  had  no  interest  for  two  or  three  years,  were  given,  as  con- 
sideration for  their  bonds,  for  each  $100  of  bonds,  they  were 
given  $75  in  the  new  first  mortgage  bonds,  and  $35,  I  think,  in 
preferred  stock. 

Q.    $110,  mortgage  and  stock? 

Mr.  Bailey.    'SIrx  I  correct  that  as  to  the  exact  facts? 

Mr.  Atwood.    All  right,  sir. 

Mr.  Bailey.  $75.00  in  general  mortgage  bonds  and  $40  in 
adjustment  bonds. 

Mr.  Ripley.     That  is  right. 

Mr.    Atwood.    What  was  that  total? 

Mr.  Bailey.     That  totals  $115. 

Mr.  Ripley.    That  totals  $115,  yes. 


45 

Mr.  Atwood.  That  was  given  for  $100  of  old  bonds?  A. 
And  tlie  interest.  They  liad  not  liad  any  interest  for  two  or 
three  years. 

Q.    That  was  tlie  disposition?    A.    Yes. 

Q.  How  was  the  connnon  stock  disposed  of,  was  that  put 
on  the  market?  You  have  used  your  preferred  and  your  mort- 
gage bonds  to  take  np  the  first  ohi  mortgage  bonds,  that  is 
riglit,  isn't  it?  A.  That  liappened  fifteen  years  ago,  and 
while  I  was  quite  familiar  with  it  at  the  time,  it  is  difficult 
for  me  to  give  the  exact  figures. 

Q.  I  can  understand  that,  Mr.  Eipley.  A.  But  substan- 
tially— if  you  desire  a  statement  as  to  exactly  how  that  was 
done,  we  can  furnish  it. 

Q.  But  the  statement  made  by  ^Ir.  Bailey  is  approximately 
correct?    A.    Yes. 

Mr.  NoRTo^^.    Mr.  Bailey  would  like  to  make  it  in  full. 

Mr.  Atw^ood.  In  due  time  he  will  be  on  the  witness  stand 
and  lie  can  do  it  then.  Now,  then,  coming  back,  if  you  will 
permit  me  to  do  so,  to  the  consideration  of  how  mucli  the  cost 
of  operation — no  we  did  dispose  of  that  by  saying  that  was  a 
negligible  quantity  and  should  not  be  considered.  Now,  if  that 
is  a  fact — or  I  think  you  have  stated,  I  may  be  repeating,  but 
see  if  I  am  right — you  have  already  stated  that  the  advance 
or  shrinkage  of  wages  is  a  matter  with  which  the  Commission 
has  nothing  to  do,  in  the  matter  of  determining  what  a  rea- 
sonable rate  is. 

Mr.  Norton.    I  did  not  so  understand  it. 

Mr.  Atw^ood.  The  record  will  show  what  it  is,  and  there  is 
no  jury  to  be  misled,  so  we  can  leave  it  to  the  record.  A.  I 
said  that  I  did  not  think  the  Commission  should  consider  that 
question  in  making  a  rate. 

Mr.  Atwood.  You  cannot  make  him  say  what  he  don't  want 
to  say. 

Mr.  Norton.  I  am  not  trying  to  make  him  say  anything,  I 
only  want  to  know  what  the  examination  is. 

Mr.  Atwood.  All  right,  sir,  I  withdraw  the  suggestion  or 
intimation.  As  to  the  capitalization  which  at  least  in  1896 
was  faii'ly  representative  of  the  actual  value  of  the  j)roperty 
that  it  stood  for,  is  that  true  of  the  situation  today  f  A.  I 
think  so. 

Q.  In  1896  the  report  that  I  have  here  discloses  the  time  that 
the  issue  of  bonds  became  due,  but  not  the  time  at  which  they 
were  born.     The  general  mortgage  due  October  1,  1895,  for 


46 

$152,000,000,  that  is  the  amount  that  you  spoke  of  first  as  hav- 
ing been  but  $114,000,000  originalh'  and  added  to  since  that 
time.    A,    It  was  less  than  that  in  1896. 

Q.  Well,  whatever  it  was,  something  like  $100,000,000.  A. 
Yes. 

Q.  Now,  the  adjustment  bonds,  $51,000,000,  they  were  is- 
sued about  that  time,  I  judge  from  the  way  you  have  spoken. 
A.    At  that  time ;  yes,  sir. 

Q.  Then  the  convertible  bonds  due  June  1,  1955,  $34,000,- 
000  of  them,  do  you  remember  when  they  were  issued?  Of 
course,  I  can  quite  understand  tbat  you  might  not  do  so,  and 
if  you  do  not  it  is  all  right.  Tliey  became  due  in  June,  1955, 
but  it  does  not  state  when  they  were  issued.  A.  Evidently 
they  were  issued  in  1905  then,  because  they  are  fifty-year 
bonds. 

Q.     I  see.     Now,  were  those  disposed    of    through   under- 
writers, sale  on  the  open  market,  or  by  offers  to  the  stockhold- 
ers?    A.     T  think  those  were  sold  through  an  underwriting 
svndicate,  but  I  am  not  certain. 
'  Q.    That  was  in  19051    A.    I  think  so. 

Q.  Have  you  any  recollection  as  to  what  the  underwriting 
was,  at  what  figure  you  disposed  of  them  to  the  underwriters, 
so  as  to  know  how  much  there  was  less  than  par  that  we  are 
I3aying  interest  on  now!  A.  I  won't  attempt  to  answer  that 
question  exactly.    They  sold  veiy  close  to  par  but  not  quite. 

Q.  I  had  that  information  because  I  have  followed  these 
things  a  little.  Tlien  came  the  convertible  bonds  due  June  1, 
1917.  Weren't  those  those  ten-year  convertibles!  A.  No; 
those  were  fives.  I  think. 

Q.    Those  were  fives,  that  is  right.    xV.    Yes. 

Q.  There  were  $22,000,000  of  them.  A.  I  think  those  were 
sold  at  101^  or  102. 

Mr.  Lyon.    What  interest  did  they  bear? 

Mr.  Ripley.    5  per  cent. 

Mr.  Atwood.  Then  the  Trans-Continental  Short  Line  due 
1958,  covering  fifty  years,  they  were  issued  in  1908?    A.    Yes. 

Q.  Do  you  remember  what  figure  they  went  at?  A.  My 
recollection  is  they  were  sold  at  97!  or  98. 

Q.    Was  that  through  underwriters?    A.    Yes. 

Q.     There  were  seventeen  millions  of  them?    A.    Yes. 

Q  .  Are  you  mathematician  enough  to  detennine  whether  or 
not  the  premium  at  which  the  $22,000,000  of  the  previous  issue 
sold,  would  offset  the  discount  at  wliidi  Hie  $17,000,00  sold, 


47 

pretty  nearly  one  would  offset  the  other,  wouldn't  it?  A. 
Pretty  nearly. 

Q.  So  the  company  did  not  lose  badly  on  the  two  transac- 
tions?   A.    No. 

Q.  Xow,  then,  special  debentures,  $2,500,000  due  February 
1st,  each  year  until  February,  1919,  total  of  $30,000,000  out- 
standing, bearing  4  per  cent.  It  doesn't  say  here  when  they 
were  issued.  Are  you  able  to  state  when  they  were  issued? 
A.  I  think  they  had  fifteen  years  to  run;  they  were  payable 
two  and  a  half  million  dollars  a  year. 

Q.  Are  those  debentures  secured  by  the  stock  and  bonds 
of  your  subsidiary  lines?  A.  No,  sir;  they  are  not;  they  are 
a  simple  promise  to  pay,  a  simple  note  secured  by  another. 

Q.  Why  do  you  attach  the  name  debenture  to  them,  if  there 
is  no  debenture  collateral?  A.  Because  that  actually  de- 
scribes them ;  they  are  a  debenture,  a  debenture  meaning  a  note 
or  promise  to  pay. 

Q.  In  your  terminology  as  a  financier,  does  not  debenture 
ordinarily  apply  to  the  same  collateral  held  as  security  for  the 
bond,  or  note,  or  call  it  what  you  will?    A.    Not  necessarily. 

Q.  I  had  that  idea.  A.  I  may  be  wrong  about  it,  but  I  do 
not  think  so,  necessarily. 

Q.  Then  these  debenture  bonds,  as  you  call  them,  are  simply 
promissory  notes?    A.    Yes. 

Q.  Not  secured  by  anything?  A.  Practically  nothing  ex- 
cept the  honor  and  faith  of  the  company. 

Q.  Now,  then,  does  the  fact  that  there  is  a  total  capitaliza- 
tion as  represented  by  capital  stock,  preferred  and  common, 
of  $233,000,000,  omitting  the  other  figures,  and  as  represented 
by  the  bonded  debt  of  $314,000,000  and  some  odd  dollars,  mak- 
ing approxmiately  at  least  $550,000,000  of  capitalization,  cause 
you  to  say  that  that  is  fairly  representative  of  the  value  of 
the  properties  that  these  securities  stand  for?  A.  I  think  it 
is,  yes. 

Q.    And  it  at  least  is  representative  of  them?    A.    Yes. 

Q.    At  least  that?    A.    Yes. 

Q.  Now,  then,  I  understood  you  this  morning,  and  you 
will  set  me  right,  if  I  am  wrong,  the  value  of  this  property 
that  you  employed  in  the  service  of  the  public  as  a  common 
carrier  should  be  considered  by  the  Commission  in  determin- 
ing as  to  whether  or  not  the  rates  proposed  are  reasonable  or 
unreasonable? 

Mr.  NoRTox.    He  did  not  say  that. 

Mr.  Ripley.    No;  I  didn't  sav  that. 


48 

Mr.  Atwood.  I  am  obliged  to  you  for  setting-  me  riglit.  Tell 
us  what  it  was  your  purpose  to  say  then,  whatever  you  did  say 
with  relation  to  the  magnitude  o'f  the  factor  of  capital  in  this 
problem.  How  mucli  ought  a  matter  of  that  sort  to  be  con- 
sidered? A.  I  don't  think  I.  alluded  to  that  at  all  in  my  evi- 
dence this  morning, 

Q.  Very  good.  Be  good  enough  to  allude  to  it  now.  How 
much  importance  should,  in  your  mind  be  given  to  the  factor 
of  capitalization,  or  the  value  of  projierty  in  determining  the 
reasonableness  or  unreasonableness  of  a  rate.  A.  I  think 
that  is  one  of  the  factors,  of  course,  and  a  very  important  one. 
So  long  as  the  railroads  of  this  country  are  run  by  private 
individuals,  so  long  as  they  are  owned  by  X)rivate  individuals, 
so  long  their  return  has  got  to  he  both  safe  and  attractive. 

How  Rates  Should  Be  Made. 

Q.  Then  as  I  understand  you,  the  factor  of  capital,  the 
value  of  the  property  as  represented  by  capital,  is  a  thing 
that  must  be  considered  either  l)y  the  maker  of  a  rate  or  by  a 
commission  that  is  passing  upon  the  reasonableness  of  that 
rate,  is  that  right!  A.  The  maker  of  the  rate  in  the  first 
instance  must  make  the  rate  such  as  to  permit  of  the  freest 
intercourse  and  the  freest  interchange  of  commodities  in  the 
country,  regardless  of  capital,  regardless  of  cost — almost  re- 
gardless of  cost,  but  entirely  regardless  of  capital.  That  is 
what  the  maker  of  a  rate  has  got  to  do  if  he  is  going  to  get  the 
best  results  out  of  his  property.  When  it  comes  to  limiting 
rates  by  law,  it  is  another  proposition.  Then  you  have  got 
to  consider  cost,  interest  on  capital,  and  everything  else. 

Q.  Now,  let  me  see  if  we  understand  one  another.  You, 
speaking  as  the  head  of  the  Santa  Fe  system  and  as  the  maker 
of  rates  in  what  you  are  pleased  to  call  your  private  capacity 
as  contradistinguished  from  your  official  ca})a.city  or  the  offi- 
cial capacity  of  the  Commission,  in  making  a  rate  don't  think 
it  proper  to  consider  and  say  it  should  not  be  taken  into  con- 
sideration, namely,  the  value  of  the  property  em]iloyed  in  the 
service.  A.  I  did  not  say  it  should  not  be  taken  into  con- 
sideration, but  I  said  as  a  matter  of  fact  in  dealing  with  these 
complex  commercial  propositions  the  maker  of  the  rate  must 
discard  to  a  very  large  extent  the  question  of  the  return  on 
capital;  becau'^^e  he  has  got  to  make  a  vast  number  of  rates 
which  he  knows  that  of  and  by  themselves  are  unprofitable, 
and  a  vast  immber  of  rates  that  ap]ilie(1  to  any  considerable 


49 

portion  of  his  business  would  l^nnkrni^t  him.  So  lone;  as  he 
makes  a  rate  that  does  not  hear  hardly  on  any  of  the  com- 
munity and  permits  the  very  fullest  interchange  of  commodi- 
ties all  over  the  country,  helps  commerce,  so  long  he  ought 
not  to  be  interfered  with. 

Q.    Is  your  answer  concluded?    A.    Yes. 

Mr.  XoRTOx.    That  is  a  reasonable  rate? 

Mr.  EiPLEY.    That  is  a  reasonable  rate. 

Mr.  Atwood,  Now,  then,  do  I  understand  you  as  express- 
ing the  opinion  that  different  rules  should  govern  the  rate- 
maker  who  is  the  rate-maker  for  a  railroad,  than  should  gov- 
ern the  Interstate  Commerce  Commission  when  they  try  to 
fix  a  rate  or  pass  upon  the  reasonableness  of  a  rate?  A.  Not 
in  the  least. 

Q.  You  think  the  same  rules  should  govern  each?  A.  Ab- 
solutely. 

Q.  Very  good.  Tiien  when  you  said  a  moment  since,  if  I 
did  not  misunderstand  you,  that  you  thought  you  should  dis- 
card pretty  nearly  altogether  the  valuation  of  the  property 
employed,  when  you  make  a  rate  to  meet  these  complex  com- 
mercial conditions,  to  use  your  own  phrasing,  you  expressed 
a  rule  that  you  think  should  apply  to  the  Interstate  Com- 
merce Commission  when  the\^  act  in  their  official  capacity?  A. 
I  do.  I  think  they  should  consider  the  value  of  the  service 
first  and  foremost  and  leave  the  question  of  the  cost  and  the 
valuation  of  the  properties  to  altogether  secondary  considera- 
tion. 

Examiner  Browx.  When  you  speak  of  the  value  of  the 
service,  you  are  speaking  now  of  the  value  of  the  service  to 
the  shipper? 

Mr.  Ripley.    I  am. 

Examiner  Brown.  As  distinguished  from  the  value  of  the 
service  as  a  concrete  fact? 

Mr.  EiPLEY.    Yes. 

Mr.  Atwood.  I  did  not  quite  know  whether  I  took  your  last 
observation  with  reference  to  labor  as  a  modification  of  your 
first  statement  in  relation  thereto.  I  understood  you  to  say 
that  the  cost  of  labor  was  a  cost  that  should  not  be  considered 
either  by  you  or  the  commission  in  determining  the  reason- 
ableness of  a  rate,  and  that  the  same  rule  applied  to  capital, 
and  yet  a  moment  ago  I  understood  you  to  say  that  the  labor 
did  have  to  be  considered  somewhat.  Was  I  wrong  in  my 
hearing?     A.     You  were  wrong  and    you    were    right,    l)oth. 


50 

What  I  said  was  that  in  making  a  rate,  I  would  not  consider 
any  of  the  costs  of  Jabor,  or  anything  else,  nor  any  question 
of  the  return  on  capital,  that  is,  under  conditions  as  they  ex- 
ist in  this  country.  If  there  was  one  railroad  in  this  country 
reaching  from  east  to  west  with  no  complications,  and  no  com- 
petition upon  which  you  were  to  fix  the  rates  absolutely  de 
novo,  with  the  fixed  idea  of  bringing  about  a  return  on  its 
investment,  that  would  be  one  question.  Then  you  would  have 
to  take  into  account  its  capital  stock,  you  would  have  to  take 
into  account  cost.  But  no  such  condition  exists  in  this  coun- 
try. The  rates  must  be  made,  ought  to  be  made,  upon  an  en- 
tirely different  proposition.  This  idea  that  the  rates  are  to 
be  based  on  cost  is,  in  my  judgment,  a  fallacy.  The  defenses 
that  have  been  made  usually  by  the  railroads  as  to  cost  as 
against  proposed  reductions  in  rates,  of  course  have  their 
basis,  they  have  their  foundation  in  fact,  as  arguing  against 
an  arbitrary  legal  reduction  of  their  rates ;  but  as  to  the  real 
question  of  judgment  as  to  what  the  rates  should  be,  they  play 
a  very  small  part. 

Q.  Now  since,  of  course,  it  is  the  situation  in  this  country, 
that  must  be  the  one  to  which  the  rules  are  applied,  the  rule 
that  you  laid  down  a  little  time  since,  of  the  ignoring  of  the 
value  of  the  property  employed  and  the  cost  of  the  opera- 
tion, in  the  making  of  the  rate,  is  the  proper  rule  in  your  judg- 
ment to  govern  yourself  or  the  commission?    A.    Yes,  sir. 

Q.  Now,  since  you  are  here  as  an  expert  in  such  matters, 
and  I  speak  advisedly,  for  one  of  your  great  experience  must 
be  considered  as  such,  I  would  ask  your  opinion  upon  the 
following  rule  with  relation  to  the  creation  of  a  reasonable 
rate  (reading) :  *'We  hold,  however,  that  the  basis  of  all  cal- 
culations as  to  the  reasonableness  of  rates  to  be  arrived  at 
or  maintained" — I  should  say,  under  legislative  sanction,  and 
of  course  the  railroads  do  that,  because  they  have  to  exercise 
the  right  of  eminent  domain  to  do  it — "must  be  the  fair  value 
of  the  property  being  used  by  it  for  the  convenience  of  the 
public,  and  in  order  to  ascertain  that  value  the  original  cost 
of  construction,  the  amount  expended  in  permanent  improve- 
ment, the  amount  in  market  value  of  the  bonds  and  stocks  at 
present  as  compared  with  the  original  cost  of  construction, 
are  all  matters  of  consideration  and  will  be  given  considera- 
tion," and  so  forth.  Do  you  approve  of  that  rule  as  laid 
down?  A.  I  ap]n'ove  of  that  as  a  guide  to  any  authority 
which  is  proposing  to  limit  rates  by  a  legal  process.    That  is 


51 

the  rule  laid  down  for  those  who  consider  that.  That  hasn't 
anything  to  do  and  does  not  apjjly  to  the  naan  who  is  expected 
to  iix  the  rate  for  the  best  interests  of  the  public  in  general. 

Mr.  Norton.  That  is  the  rule  stated  regarding  the  attack 
on  a  maximum  schedule,  is  it  not? 

Mr,  EiPLEY.    Yes. 

Mr.  Atwood.  Did  I  not  understand  you  a  minute  ago  that 
you  propounded  as  the  proper  rule,  should  be  the  one,  in 
your  judgment,  to  control  not  only  yourself  but  the  Inter- 
state Commerce  Commission  when  they  come  to  act  in  mat- 
ters of  this  sort?  A.  If  they  are  proposing  to  make  rates, 
yes. 

Q.  And  they  do  have  that  power?  A.  If  they  are  propos- 
ing to  limit  rates,  then  of  course  the  extent  to  which  they 
can  be  limited  must  bring  in  tlie  question  as  to  the  extent  to 
which  they  can  take  private  property  for  public  uses. 

Q.  Do  you  attempt  to  ditferentiate  between  a  reasonable 
rate  that  is  made  so  by  reducing  an  unreasonable  one,  and 
the  creation  of  a  rate  in  the  first  instance?  It  is  a  reason- 
able rate,  however,  if  it  comes  into  existence?  A.  That  de- 
pends upon  your  definition  of  a  reasonable  rate. 

Q.  A  reasonable  rate  and  an  unreasonable  one,  and  the 
definition  for  them,  where  do  you  go  to  look  if  it  is  not  rhe 
tribunals  that  finally  determine  these  things?  A.  The  same 
rule  I  laid  down  before  is  what  in  my  judgment  should  gov- 
ern. 

Q.  In  other  words,  the  fixing  of  a  reasonable  rate  irre- 
spective of  what  definitions  may  be  given  as  to  the  means  of 
ascertaining  it  by  the  Supreme  Court  of  the  United  States, 
is  in  your  judgment  the  opinion  of  the  rate-maker  as  to  what 
the  traffic  will  bear,  is  that  right? 

Mr.  Norton.  I  beg  pardon,  the  Supreme  Court  has  not  fixed 
the  rate  in  the  case  you  have  cited ;  it  is  not  fixing  it  in  that 
ease. 

Mr.  EiPLEY.  I  think  that  the  principle,  as  I  stated  it  this 
morning,  and  as  I  have  stated  it  many  times  since,  the  prin- 
cipal thing  for  any  rate  making  powder  to  consider  is  the  value 
of  the  service  to  the  shipper.  The  value  as  compared  with  the 
commodity  to  be  transported  and  the  service  rendered. 

Mr.  Atwood.  I  think  you  have  stated  that  several  times. 
Now,  let  me  start  again,  to  make  sure  that  we  do  not  mislead 
one  another.  When  you  make  a  rate  you  say  that  in  your 
opinion  the  true  rule  to  govern  you  is  one  that  would  elimi- 


52 

nate  the  cost  of  operation  or  the  value  of  the  property  em- 
ployed; that  the  Intei'state  Commeree  Commission  should  be 
governed  by  tlie  same  rules  that  you  think  should  govern  you, 
but  that  when  the  Supreme  Court  of  the  United  States  conies 
to  pass  upon  the  question  as  to  whether  a  rate  is  reasonable 
or  nnreasonable,  that  they  should  take  into  consideration  both 
of  those  factors.    Now,  have  we  got  it  straight? 

Mr.  Norton.    No,  he  didn't  say  that. 

Mr.  Ripley.  I  don't  know  that  I  quite  understand  what  you 
are  trying  to  get  at. 

Mr.  Atwood,  If  it  is  convenient  not  to,  or  if  you  really 
do  not,  why,  let  it  go.  Then  I  take  it  that  the  quotation  that 
is  attributed  to  von  and  which  appeared  in  the  American 
Lumberman  of  May  30,  1908,  and  in  the  Traffic  World  and 
Traffic  Bulletin  of  July  23,  to  this  effect,  is  a  correct  quota- 
tion of  your  views:  "The  making  of  freight  rates  has  not, 
never  did  have,  never  will  have,  never  ought  to  have,  any  re- 
lation to  the  capitalization  of  the  railroads."  That  is  a  cor- 
rect expression  of  your  views?    A.    It  is. 

Q.  Now,  then,  that  being  so,  what  was  the  purpose  in  your 
mind  in  presenting  to  the  Commission  this  morning  the  mag- 
nitude of  the  capitalization,  the  fact  that  some  of  it  was  there 
but  was  fictitious  in  the  sense  that  there  was  face  value  when 
there  was  seven  million  dollars  less  than  the  actual  value 
went  into  it!  In  order  to  form  an  opinion  of  the  purpose  of 
your  testimony  I  would  thank  you  if  you  would  tell  us  vdiy 
you  talked  about  the  capital  at  all  this  morning!  A.  Because 
that  has  been  the  customary  line  of  defense  in  all  these  eases 
for  a  long  time,  and  because  in  expressing  my  views  as  to  how 
rates  ought  to  be  made  I  was  not  expressing  them  with  refer- 
ence to  this  case. 

Here  is  an  attempt  to  limit  our  rates  hr  law.  Here  is  an 
attempt  to  limit  rntes  on  the  i"»art  of  the  Commission.  The 
Commission  has  suspended  certain  rates  that  we  put  up.  I 
say  that  the  question  before  the  Commission  is  primarily 
what  is  the  value  of  the  service  we  are  rendering  to  the  ship- 
per. Incidentally  that  value  lias  necessarily  been  enhanced 
by  increased  ex]:>enses  and  increased  wages,  by  increased  val- 
uation, by  incomplete  and  inadequate  returns  on  capital. 
Those  are  all  factors,  but  the  prime  factor  is  what  is  it  worth 
to  the  shi|)])or. 

Q.  Then  your  testimony  with  relation  to  cajiital  given  this 
morning  was  made  with  the  notion  in  your  mind  tliat  the  mat- 


53 

ter  before  tlie  Commission  to  whom  these  examiners  will  trans- 
port this  testimony,  was  that  of  what  the  value  of  the  service 
was  worth  and  not  what  the  reasonableness  of  the  rate  was? 
A.  I  think  the  Commission  perhaps  understands  what  I  am 
trying  to  say.  I  perhaps  am  unfortunate  in  my  development 
of  the  theory. 

Mr.  XoETox.    It  is  very  clear,  Mr.  Eipley,  I  think. 

Mr.  Eipley.  I  said  that  the  making  of  a  rate,  in  my  opin- 
ion, was  a  matter  of  judgment,  and  primarily  it  was  a  question 
of  what  the  service  was  worth.  And  I  said  that  I  believed 
it  was  for  the  interests  of  the  public  that  there  should  not  be — 
that  the  railroads  should  not  be  limited  as  closely  as  they 
have  been,  and  as  they  are  now,  as  to  what  they  earn.  That  is 
another  phase  of  the  subject.  But  you  asked  me  what  I  con- 
sidered a  reasonable  rate  was  and  how  it  ought  to  be  made  so, 
in  my  judgment ;  and  if  I  have  not  made  myself  clear  I  do  not 
think  I  can  do  it. 

Mr.  Atwood.  I  trust  my  queries  have  not  been  annoying, 
and  if  they  have  I  will  pursue  another  course.  A.  Xo,  sir, 
not  at  all.    That  is  what  I  am  here  for,  to  be  annoyed. 

Q,  Xow,  then,  about  the  amount  that  the  traffic  will  bear. 
Do  I  understand  you,  and  you  will  correct  me  if  I  am  wrong, 
am  I  right  in  my  understanding  of  your  purpose  to  express 
your  views  when  I  say  that  I  understand  it  to  be  this:  That 
the  amount  that  the  traffic  will  bear  is  that  amount  of  charge 
at  which  it  will  most  freely  move  over  the  lines  of  trans- 
portation, is  that  right?    A.    Yes,  substantially  that  is  right. 

Q.  Wherein  is  there  an  absence  of  actuality  ?  A.  Well,  I 
am  willing  to  leave  that  answer. 

Q.  State,  then,  as  an  expert  in  the  common  carriage  of 
merchandise  whether  or  not  commodities  are  not  moved  more 
freely,  the  lower  the  freight  charge,  all  other  conditions  being 
equal?  A.  Under  certain  conditions  they  will.  Under  cer- 
tain— 

Q.  All  conditions  being  equal.  A.  Well,  all  conditions  can- 
not be  equal,  and  never  are  equal.    That  is — 

AVhat  the  Teaffic  Should  Beae. 

Q.  X"ow  let  us  see  if  we  understand  one  another.  You 
have  made  the  statement  that  what  you  mean  by  the  phrase 
''all  that  the  traffic  will  bear"—  A.  I  did  not  use  that 
phrase,  excuse  me.  I  never  used  that  phrase.  I  did  not  say 
"all  the  traffic  would  bear." 


54 

Q.  What  the  traffic  would  bear!  A.  What  the  traffic  would 
bear.    There  is  a  great  difference, 

Q.  All  right,  your  fine  shades  of  meaning  I  will  try  to  fol- 
low.   What  the  traffic  will  bear. 

Mr.  Norton.     It  is  a  very  broad  shade  of  difference. 

Mr.  Atwood.  Let  me  see  if  I  understand  your  interpreta- 
tion of  the  phrase,  ''what  the  traffic  will  bear,"  as  being  that 
rate  at  which  the  commodities  will  most  freely  move  over  the 
lines  of  the  carrier.  That  is  right,  is  it?  A.  That  was  the 
l^hrase  I  used,  yes.  I  will  qualify  that  by  saying  what  the 
traffic  will  bear  and  still  move  most  freely  and  enable  the 
products  and  the  manufactures  of  one  part  of  the  country  to  be 
used  to  the  utmost  possible  extent  in  the  other — to  be  no  re- 
struction  in  the  matter  of  transportation. 

Q.  Now,  then,  if  that  be  so,  I  will  now  ask  you  as  a  cor- 
ollary of  that  theory  to  answer  whether  or  not  it  is  not  a  fact 
that  with  commercial  conditions  substantially  the  same  at 
either  end  of  the  line,  and  the  carrier  the  same,  that  the  lower 
the  rate  the  more  freely  the  commodity  will  move.  A.  I  should 
be  inclined  to  deny  that  proposition  as  a  general  one.  There 
are  very  many  conditions  under  which  that  would  be  true,  but 
when  you  say  the  conditions  are  the  same,  the  conditions  never 
are  the  same  and  it  is  an  impossible  theory. 

Q.  Oh,  well,  while  that  as  an  academic  proposition  is  true, 
Ohioago's  conditions  today  are  enough  what  they  were  yester- 
day so  we  can  speak  of  the  conditions  of  the  two  days  being 
the  same.  A.  It  is  not  the  condition  of  Chicago  today  and 
yesterday — 

Q.  I  understand,  but  that  is  one  of  the  conditions —  A. 
You  ask  whether  the  conditions  being  the  same  the  same 
amount  or  greater  amount  of  tonnage  will  move  at  a  lower 
than  a  higher  rate.  That  depends  on  what  it  is  and  on  a  thou- 
sand various  conditions.  The  question  cannot  be  answered  in 
the  abstract  any  more  than  you  can  answer  the  question  Hux- 
ley asked  once  of  a  man,  which  he  liked  best,  billiards  or  cab- 
bage. 

Q.  Well,  let  us  not  get  scientific —  A.  That  is  not  scien- 
tific. 

Q.  Huxley  was  a  scientist,  you  know.  A.  That  is  not 
scientific.  He  simply  asked  the  man  which  he  liked  best,  bil- 
liards or  cabbage.  You  might  as  well  talk  about  the  same  con- 
ditions, about  property  moving  under  the  same  conditions,  it 
never  happened,  and  conditions  never  are  the  same. 


55 

Q.  Nothing  so  plebeian  as  cabbages  could  attract  your  at- 
tention, so  we  will  go  back  to  the  heart  of  the  proposition.  If 
you  undertake  to  say  to  these  Examiners  and  so  to  the  Com- 
mission that  you  cannot  conceive  of  an  answer  to  this  ques- 
tion so  that  you  can  answer  it  yes  or  no,  that  with  commer- 
cial conditions  substantially  the  same  between  the  termini 
of  a  road,  we  will  say  between  Chicago  and  Kansas  City,  that 
a  commodity,  any  commodity,  won't  move  more  freely  over 
the  line  of  the  carrier  when  the  rate  is  low  than  when  the 
rate  is  higher —  A.  It  is  an  impossible  question.  If  you  de  • 
mand  an  answer  I  would  say  no. 

Q.  You  would  say  it  would  not  move  fore  freely?  A.  Yes, 
I  would. 

Q.  To  go  a  bit  farther  than  that,  let  us  assume  for  a  mo- 
ment that  dry  goods — do  you  know  the  rate  between  here  and 
Kansas  City?    A.    Yes. 

Q.     74.3  cents  a  hundred?    A.    I  think  so. 

Q.  Suppose  tomorrow  there  went  into  effect  a  rate  of  25 
cents  first  class  in  the  place  of  74.3  cents  on  Atlantic  Seaboard- 
Kansas  City  shipments,  do  you  think  that  the  commodities  cov- 
ered by  first  class  would  not  move  more  freely  than  it  does  at 
74.3  cents?     A.     Not  a  single  pound. 

Mr.  NoETON.  They  are  getting  all  the  dry  goods  they  want 
at  Kansas  City  now,  are  they  not? 

Mr.  Atwood.  I  do  not  know.  It  is  usually  accepted  as  an 
economic  proposition  that  the  more  cheaply  any  commodity 
is  transported  to  the  consumer  the  more  is  consumed. 

Mr.  Norton.     You  are  getting  into  science  yourself,  now, 

Mr.  Atwood.  Economics  are  not  science.  It  is  common 
sense,  consequently  you  will  never  understand  it. 

Q.  When  we  speak  of  what  the  traffic  will  bear,  who  in  your 
judgment  is  the  determining  factor,  the  man  who  makes  the 
rate?    A.    Not  necessarily. 

Q.  Is  it  the  shipper?  A.  Not  necessarily.  He  is  one  of  the 
factors. 

Q.  Is  he  ever  taken  into  consultation  when  you  come  to 
make  these  rates?  A.  Indeed  he  is.  If  he  was  not,  our  rates 
would  all  be  higher  today. 

Q.  Were  it  not  for  the  Commission,  you  mean.  A.  No,  I 
did  not  say  anything  about  them.     I  said  the  shippers. 

Q.  You  say  the  shipper  is  taken  into  consideration  and  his 
judgment  helps  govern?    A.    Yes. 

Q.     What  of  your  rates  which  now  obtain  are  the  result  of 


56 

the  application  of  the  rule  which  ycui  liave  ]u-omiilgated,  any 
of  them?    A.    Which  rule? 

Q.  The  rule  that  it  should  be  what  the  traffic  will  bear.  A. 
I  think  comparatively  few  of  them. 

Q.  Very  few  of  them.  You  think  most  of  them  could  bear 
more?    A.    I  do. 

Q.  By  that  you  mean  that  they  could  and  would  pay  a 
higher  rate  than  now  they  pay  and  still  substantially  the 
same  quantum  of  commodities  would  move  over  the  line?  A. 
I  do. 

Need  ok  AIoney  Again. 

Q.  A  little  time  since,  this  morning,  in  fact,  you  said  you 
desired  the  advance  of  rates  because  you  needed  the  money. 
I  quote  you  correctly?    A.    Yes. 

Q.  The  money  is  not  needed  to  i^ay  operating  expenses,  is 
it,  because  you  have  plenty  to  pay  that?  A.  I  do  not  think 
we  have. 

Q.  Well,  you  paid  them  all,  did  you  not?  A.  Oh,  yes,  we 
paid  them. 

Q.  And  had  nine  or  ten  million  to  go  to  betterments  and 
additions  and  improvements  and  a  fund  of  five  million  dol- 
lars.   A.    In  1909,  yes. 

Q.  And  you  had  a  fund  of  $3,000,000  to  go  to  future  im- 
provements in  1910?    A.    About  that. 

Q.  And  you  spent  something  in  the  way  of  additions  and 
betterments  in  1910?     A.     Not  much. 

Q.  And  you  left  your  road  in  as  good  or  better  condition 
at  the  end  of  the  fiscal  year  1910  as  you  did  in  1909?  A. 
Yes. 

Q.  So  you  did  not  need  the  money  to  keep  your  road  in 
as  good  condition  as  it  was  before;  that  is  true,  is  it  not? 
A.     We  are  talking  about  the  past. 

Q.  We  are  talking  about  the  year  1910,  the  fiscal  year  end- 
ing June  30,  1910.  A.  I  think  this  case  has  to  do  with  the 
future. 

Q.  But  it  has  been  suggested  that  it  is  only  by  the  past 
that  we  can  judge  of  the  future,  consequently-^  A.  Well, 
when  we  see  a  stone  wall  in  front  of  us  at  the  end  of  the 
street,  the  fact  that  we  have  not  jireviously  gone  through  that 
stone  wall  does  not  indicate  that  the  wall  is  not  there. 

Q.  But  if  you  have  a  ladder  composed  of  four  or  five  mil- 
lion dollars  gross  revenue  to  help  you  climb  the  wall  the  sit- 


57 

uation  is  not  as  difficult  as  it  otherwise  would  be.    A.    It  would 
not  help  us  am-. 

Q.  1  wish  I  had  it,  I  think  it  would  help  me.  Well,  com- 
ing now  to  the  discussion — by  the  way,  while  it  was  not  the 
thought  I  had  in  mind,  I  want  to  speak  for  a  minute  about  the 
subsidiary  lines,  if  that  is  the  way  to  describe  those  branches, 
if  that  is  the  right  word  to  apply  to  them,  that  are  other  than 
what  we  call  the  main  line,  or  at  least  what  the  commonalty 
call  it.    A.    Yes. 

Subsidiary  Lines. 

Q.  Let  me  see.  Eastern  Railway,  Grand  Canyon,  and  Jas- 
per— those  are  not  all.  Here  is  a  summary  of  the  system.  The 
railway  proper  is  7,000  miles.  The  Eio  Grande  &  El  Paso,  a 
piece  of  track  20  miles  long;  the  Gulf,  Colorado  &  Santa  Ee; 
the  Eastern  Railway  of  New  Mexico;  the  Pecos  &  Northern 
Texas;  the  Santa  Fe,  Prescott  &  Phoenix  and  the  Southern. 
Kansas  Railway  of  Texas.  How  was  the  Gulf,  Colorado  & 
Santa  Ee  acquired  ?  A.  It  was  accjuired  many  years  ago  before 
my  time  by  the  purchase  of  the  bonds  and  stock  which  was — 

Q.  At  the  time  of  the  reorganization  in  1896,  was  it  so 
far  incorporated  into  the  Santa  Ee  System  that  there  was 
a  merger  or  elimination  of  those  stocks  and  bonds?  A.  The 
bonds  and  stock  were  in  the  treasury  all  through  the  receiver- 
ship and  are  still. 

Q.  Do  you  know  the  means — if  it  was  before  your  time 
you  might  not  know^— the  means  resorted  to,  to  acquire  money 
with  which  to  purchase  the  stocks  of  the  Gulf,  Colorado  & 
Santa  Ee  which  are  now  in  the  treasury  of  your  company  I  A. 
I  do  not  recollect  that.  It  was  before  the  present  company 
had  anything  to  do  with  it  and  long  before  my  time. 

Q.  Now  the  Santa  Ee  System  owns  the  stock  of  that  com- 
pany!   A.    Yes. 

Q.  And  certain  or  all  of  the  bonds!  A.  And  all  of  the 
bonds. 

Q.  And  they  are  in  the  treasury  of  the  company!  A.  They 
are. 

Q.  Are  they  pledged  as  security  for  any  of  the  obligations 
of  your  company!     A.     They  are. 

Q.  To  what  obligations  are  they  pledged!  A.  I  think  they 
are  pledged  under  the  general  mortgage. 

Q.     Is  that  true  of  all  the  stock  and  securities  of  the  roads 


58 

you  heard  me  just  read?  A.  Not  all,  no,  sir.  It  is  true  of  a 
large  number  of  them. 

Q.  Do  you  have  in  mind,  or  have  you,  Mr.  Bailey,  the  fig- 
ures showing  the  capitalization  of  the  Gulf,  Colorado  &  Santa 
Fe,  which  is  now  in  the  hands  of  the  treasury,  or  pledged? 

Mr.  Bailey.  They  are  pledged  under  the  general  mortgage, 
the  entire  capitalization. 

Mr.  Atwood.     Do  you  know  the  amount  of  them? 

Mr.  Bailey.  You  will  find  them  on  the  back  of  that  report, 
the  last  two  statements.  (Referring  to  Santa  Ee  Annual  Re- 
port 1909.) 

Mr.  Atw^ood.     Stocks  pledged  as  securities  to  funded  debt. 

Mr.  Bailey.  First  mortgage  $12,695,000,  second  mortgage 
bonds  $8,614,000,  and  right  on  the  opposite  side  you  will  find 
the  Gulf,  Colorado  &  Santa  Fe  stock,  45,600  shares. 

Mr.  Atwood.  To  make  a  long  jump,  that  is  true  as  I  gather 
of  nearly  all.  "What  of  those  are  not  included  in  the  pledged 
securities?  A.  Well,  we  have  quite  a  number  of  subsidiary 
lines  that  have  been  built  under  different  charters,  which  are 
not  pledged  under  our  general  mortgage.  The  funds  for  the 
construction  were  derived  from  the  sale  of  our  general  mort- 
gage bonds,  but  they  are  not  a  specific  lien  on  that  property. 

Q.  The  question  is  suggested  by  Mr.  James  as  to  whether 
or  not  you  distinguish  or  differentiate  between  the  cost  of  the 
service,  which  of  course  is  paid  by  you,  and  the  value  of  the 
service,  which  of  course  is  the  thing  the  benefit  of  which  goes  to 
the  shipper.  Is  there  any  identity  in  your  mind  between  those 
two?  A.  I  don't  quite  understand.  Any  identity,  what  do 
you  mean? 

Cost  of  Service. 

A.  Well,  whether  or  not  the  fact  that  a  service  costs  a 
dollar  is  at  all  determinative  of  the  value  of  that  service  to 
the  man  who  is  served  thereby?  A.  It  would  in  part  deter- 
mine me  as  to  whether  I  was  proposing  to  make  a  rate  which 
was  materially  below  that  cost.  I  should  hesitate  to  go  below 
what  I  considered  the  cost  of  the  transaction.  To  that  extent 
it  would  influence  me,  of  course,  although,  as  I  said,  it  fre- 
quently becomes  necessary  and  desirable  to  go  below  the  aver- 
age cost.  But  if  I  thought  the  cost  of  that  individual  trans- 
action would  exceed  what  I  was  going  to  get  out  of  it,  of  course 
I  would  not  do  it. 

Q.     In  other  words  yon  would  recognize  it  would  be  un- 


59 

lawful  to  make  a  rate  which  was  less  than  remunerative;  but 
suppose  the  service  was  actually  w^orth  to  the  consignee  or 
shippee  of  a  commodity  $3.00,  and  the  cost  to  you  was  actually 
$1.00,  the  $3.00  rather  than  the  $1.00  would  be  the  measure  of 
a  proper  rate  to  charge  that  nianf  A.  That  would  depend 
altogether  upon  what  it  was,  what  its  value  was,  and  what  its 
value  was  at  the  destination,  and  what  its  value  was  at  the 
point  of  production. 

Q.  Would  the  fact  of  the  character  of  the  commodity  cut 
any  figure  with  you —    A.    Very  little. 

Q.  Pardon  me  until  I  finish  the  question.  When  you  take 
into  consideration  the  factor  in  the  problem  that  is  expressed 
in  the  thought  that  that  service  is  of  value  to  him  to  the  amount 
of  $3.00,  now  that  is  a  way  of  getting  at  what  the  traffic  would 
bear,  if  it  is  worth  that  to  him  he  would  ship  the  stutf  at  that 
figure.  A.  If  100  pounds  of  it  was  worth  $500,  I  should  con- 
sider that  $3.00  carriage  rate  was  extraordinarily  cheap,  even 
if  it  paid  me  a  profit  of  300  or  600  per  cent. 

Q.  If  3"ou  will  be  good  enough  to  drop  the  concrete  and 
take  the  abstract  propounded  in  this  question —    A.    I  cannot. 

Q.  I  am  sure  you  can  but —  A.  I  cannot  deal  with  the  ab- 
stract except  by  concrete  instances. 

Q.  That  is  by  way  of  illustrating,  but  not  by  way  of  con- 
sent, and  that  is  what  I  am  addressing  myself  to  at  this  mo- 
ment. I  will  ask  again,  since  you  have  stated  that  the  proper 
measure  to  determine  what  the  proper  rate  is  what  the  traf- 
fic will  bear,  and  that  that  means  the  rate  at  which  it  will 
freely  move,  recognizing  the  fact  that  if  a  service  is  worth  to 
a  man  who  is  employing  the  carrier  $3  he  will  certainly  em- 
ploy the  carrier  at  that  figure  because  he  can  make  money  by 
employing  it  at  a  figure  at  which  he  derives  a  profit —  A. 
Exactly. 

Q.  Now,  then,  it  is  the  fact  that  that  carriage  would  cost 
the  carrier  only  $1,  because  you  put  them  differently  than 
that;  the  $3,  the  value  of  the  service  to  the  man  who  is  em- 
ploying the  carrier  is  the  true  way  of  fixing  the  rate.  A. 
Not  at  all. 

Q.  Then  that  would  not  be  the  way  of  fixing  it?  A.  I 
said  the  fact  that  it  only  cost  me  $1  would  not  influence  me 
to  make  the  rate  less  than  $3  if  I  thought  that  the  circum- 
stances warranted  it. 


60 

Again,  Transportation  Economies. 

Q.  Sometliing  was  said  in  language  that  seemed  to  me 
disparging  of  the  greater  capacity  of  car  and  engine.  Do  you 
desire  to  be  understood  as  saying  that  it  is  still  a  problemat- 
ical question  in  the  mind  of  expert  railroad  men  as  to  whether 
or  not  the  freight  engines  now  employed  are  more  economical 
to  employ  than  those  of  less  drawing  i^owerl  A.  No,  sir,  I 
do  not  sa}^  that. 

Q.  And  it  is  true  that  these  larger  cars  with  greater 
capacity  are  not  recognized  by  sound  railroad  men  as  being 
an  improvement  in  the  way  of  cheapening  the  cost  of  trans- 
portation or  carriage  I  A.  It  is  a  very  doubtful  question  as  to 
whether  the  increase  of  the  car  beyond  certain  limits,  say  be- 
yond 80,000  pounds — some  say  60,000  pounds — whether  that  is 
an  economy. 

Q.  Coming  back  a  minute  to  this  question  of  what  the  traf- 
fic will  bear,  do  you  recognize  the  fact  that  what  the  traf- 
fic will  bear  under  the  definition  which  you  give  that  phrase, 
is  determined  in  some  measure  at  least  by  the  general  pros- 
IDerity  of  the  country!    A.    Yes,  as  to  certain  items. 

Q.  Well,  take  the  schedule  as  a  whole,  we  will  say,  when 
business  is  exceedingly  brisk,  good  as  we  common  people  say, 
business  is  good,  does  not  traffic  move  even  at  the  same  rates 
more  freely  than  when  what  we  call  hard  times  are  on!  A. 
As  to  the  great  bulk  of  the  merchandise  moved,  it  moves  freely 
or  otherwise  according  to  the  conditions  of  the  time  and  the 
freight  rate  does  not  affect  it. 

Q.  No,  you  have  gotten  just  the  wrong  end  of  what  I  am 
trying  to  talk  about,  or  perhaps  I  have  not  presented  it  to 
you  correctly.  In  any  fixed  schedule  such  as  now  obtains  over 
your  line,  if  business  is  good  there  is  more  to  move  than  when 
business  is  bad?    A.    Yes. 

Q.  That  is  undoubtedly  so.  Now,  if  when  business  is  good, 
or  to  put  it  the  other  way,  when  business  is  bad,  is  your  judg- 
ment such  that  it  causes  you  to  say  if  there  was  a  pronounced 
diminution  of  the  rates  there  still  would  not  be  an  increased 
movement  of  the  commodities?  A.  No,  sir,  there  would  not. 
Now,  I  do  not  mean  by  that  that  there  are  not  certain  things 
under  certain  conditions  the  movement  of  which  would  not  be 
excited  and  increased  by  a  concession  in  the  rates.  That  has 
been  the  policy  always.  Perhaps  it  has  been  carried  to  an 
unreasonable  extent,  but  always  when  the  proper  reasons  are 


61 

shown  to  demonstrate  that  there  would  be  an  increase  in  the 
movement,  it  has  been  granted. 

Q.  But,  Mr.  Eipley,  I  understood  you  tliis  morning,  in 
answer  to  the  query  of  your  counsel,  to  say  that  one  of  the 
things  that  moved  you  and  those  circumstances  as  you  are  in 
making  the  rates  is  that  you  desired  to  participate  in  the  gen- 
eral prosperity  which  had  been  obtained?  A.  I  did  not  say 
so. 

Q.  Is  that  at  all  one  of  the  factors  which  moved  you  to 
making  the  demand,  a  desire  to  participate,  if  you  put  it  that 
way,  in  the  general  prosperity?  A.  I  think  that  it  is  ab- 
surd, with  the  general  prosperity  which  has  been  abroad  for 
three  or  four  years,  that  the  railroads  have  had  so  little  of  it. 

Q.  In  other  w^ords,  that  there  should  be  an  advance  in 
rates  because  of  the  general  prosperity,  that  is  what  your  con- 
clusion comes  to,  I  take  it.  A.  I  put  it  the  other  way.  I  think 
that  is  the  most  excellent  reason  why  there  should  be  no  objec- 
tion to  an  advance  in  the  rates. 

Q.  And  are  we  to  infer  from  that  that  if  times  should  be- 
come hard  you  would  think  it  entireh^  just  for  the  Commis- 
sion to  abate  and  diminish  the  rates  because  of  that  fact? 
A.     No. 

Q.  You  would  not  accept  that  end  of  the  proposition?  A. 
Xo,  and  we  have  not  had  the  other.  I  would  be  quite  willing 
to  take  one  if  we  could  get  the  other. 

Q.  That  is  if  you  could  get  the  other  first?  A.  Xo,  I  am 
quite  willing  to  enter  into  a  contract  that  if  we  could  get  one 
we  would  ta.ke  the  other. 

Q.  But  what  if  there  was  a  change  of  directors  and  man- 
agers w^io  would  think  they  were  not  bound  to  accept  that? 

Mr.  XoETOx.  We  would  expect  the  Commission  to  enforce 
that. 

Mr.  Eipley.  I  have  not  yet  to  see  anyl)ody  who  has  had 
trouble  in  enforcing  contracts  against  railroads. 

Mr.  Atwood,  Oh,  well,  an  unlawful  contract  such  as  that, 
no  lawyer  would  undertake  to  say  a  contract  such  as  that  was 
good.  You  mentioned  as  a  concrete  illustration  the  situation 
in  Kansas  City,  where  you  said  that  the  railroads — and  I  did 
not  suppose  you  meant  your  road  alone,  of  course — were  build- 
ing a  big  station.  Tliat  is  being  built  by  the  Kansas  City 
Terminal  Company?    A.    Yes. 

Q.  And  that  is  not  exi^ected  to  be  built  out  of  the  surplus 
earnings  of  the  roads  who  own  the  stock  in  that  company?  A. 
Indeed  no.    It  ought  to  be,  verv  largelv  it  ought  to  be. 


G2 

Q.  The  fact  is  an  issue  of  very  many  millions  of  dollars  of 
bonds  has  been  authorized  by  the  company,  and  it  is  the  pur- 
pose of  that  company  as  you  understand  it,  to  get  the  money  in 
the  way  of  bond  expenditures  from  the  dear  people  in  order 
to  have  that  built.    A,    The  dear  people,  did  you  say? 

Q.  Yes.  You  do  not  expect  anybody  to  draw  the  money 
out  of  the  vasty  deep,  do  you?  Somebody,  which  constitutes 
the  people,  for  even  the  bondholders  are  people.  A.  They  ex- 
pect to  mortgage  the  property,  and  fortunately^  they  sold 
bonds  to  some  extent  already — 

Q,     Do  you  know  at  what  they  sold  them?    A.    Yes. 

Q,  How  much  did  the  underwriters  get  out  of  it?  A.  I 
do  not  think  that  is  germane  to  the  question.  I  do  not  think 
the  underwriters  have  got  anything  yet,  and  I  do  not  know 
whether  tliey  ever  will. 

Non-kevenue-Peoducing  Expenses. 

Q.  You  were  using  that  as  an  illustration  of  one  of  the 
things  that  the  railroad  companies  had  to  build,  from  which 
they  derived  no  direct  revenue.    A.    That  is  right. 

Q.  Now,  then,  do  you  mean  to  be  understood  as  saying  quite 
that,  that  the  arrangements  there  in  Kansas  City — have  you 
knowledge  of  it?    I  take  it  you  have?    A.    I  have. 

Q.  And  the  arrangement  made  between  the  city  and  the 
company?    A.    Yes. 

Q.  And  the  concessions  made  to  it  and  the  franchises  that 
went  with  it?  A,  I  did  not  notice  any  great  concessions  with 
it. 

Q.    You  got  the  use  of  several  streets.    A.    No. 

Q.  You  got  the  franchise,  did  you  not?  A.  We  got  a 
franchise  and  got  a  right  to  close  a  few  streets  at  the  expense 
of  putting  viaducts  over  a  great  many  others.  I  think  the  city 
drove  a  very  hard  bargain. 

Q.  And  the  result  of  it  all  was  that  for  the  granting  of 
this  200  year  franchise  and  the  granting  of  such  concessions, 
if  it  is  not  too  great  a  term  to  use,  you  did  enter  into  an 
agreement  for  the  building  of  the  depot?    A.    Yes, 

Q.  Was  it  not  recognized  among  you  railroad  people  that 
that  was  a  necessity  which  had  to  be  met,  by  the  growth  of  the 
terminal,  and  that  your  Union  Depot  as  it  is  now  was  entirely 
inadequate?    A.    Yes,  sir,  certainly. 

Q.  So  it  is  not  altogether  a  philanthropic  actuation  which 
caused  you  to  plan  it? 


63 

Mr.  XoRTON.     That  has  not  been  suggested. 

Mr.  EiPLEY.  No,  that  has  not  been  suggested.  We  are 
spending  $30,000,000  on  a  depot  when  we  could  build  one  for 
$100,000  which  would  answer  our  purposes. 

Mr.  Atwood.  But  you  could  not  do  that  and  get  the  con- 
cessions in  the  way  of  streets  and  locations  for  $100,000,  could 
you?  A.  No,  that  is  precisely  what  we  said,  that  these  com- 
munities demanded  a  great  deal  of  us  which  would  not  pay 
us  any  interest. 

Q.  As  suggested,  was  the  fact  that  the  locus  was  in  such 
a  juxtaposition  to  the  rivers,  the  Kaw  and  the  Missouri,  that 
the  flood  situation  was  a  moving  factor  in  determining  the 
roads  to  get  out  of  the  bottoms"?  A.  We  did  not  need  any 
moving  factor  to  determine  us  to  get  away  from  where  we 
were,  because  there  was  no  sense  in  staying  there;  it  was  over 
crowded  and  bad  in  every  respect.  There  was  no  question 
about  our  getting  away  from  there,  but  we  did  not  have  to 
build  a  marble  palace  for  the  passengers,  which  the  city  of 
Kansas  City  practically  compelled  us  to  build  in  return  for  a 
railroad  concession. 

Q.  I  do  not  suppose  the  public  at  large  is  interested  in 
Kansas  City  as  I  am  and  as  you  ought  to  be,  but  I  will  ask 
you  this  now  in  absolute  frankness:  is  it  not  a  fact  that  you 
could  not  have  got  the  franchise  that  you  did  receive  and 
which  you  thought  at  least  a  sufficient  consideration  to  cause 
you  to  build  the  structure  you  are  going  to,  if  you  had  not 
agreed  to  build  the  size  structure  which  is  contemplated?  A. 
Very  likely. 

Mr.  NoKTox.  That  is  what  he  says — the  city  compelled  him 
to  build. 

Mr.  Atwood.  But  they  could  not  compel  them  to  build. 
The  only  thing  is,  I  want  to  disabuse  the  mind  of  the  Com- 
mission of  the  idea  that  there  is  a  donated  or  eleemosynary 
element  about  that  depot.  It  is  a  mere  matter  of  bargain  and 
sale. 

Mr.  NoETox.    That  has  not  been  suggested. 

Mr.  Atwood.  He  gave  it  as  an  illustration  of  one  of  the 
ways  moneys  went  from  which  there  was  no  return  and  which 
ought  not  to  be  capitalized.    Is  that  capitalized?    A.    It  is. 

Q.  Pretty  heavily  capitalized^ — how  many  millions  of  bonds 
are  authorized?    A.     Well,  I  think  thirty  millions,  but — 

Q.  How  much  did  you  say  it  is  going  to  cost?  A.  We  will 
probably  spend  about  $15,000,000. 

Q.     An  authorization  of  bonds  for  two  to  one  on  the  actual 


64 

contemplnted  cost.  A.  Hold  on,  don't  put  it  that  way.  Every 
dollars  of  bonds  that  are  sold,  every  dollar  received  for  bonds 
will  go  into  the  propertv.  There  is  an  authorized  issue  of 
$30,000,000,  but  only  $15,000,000  about  to  be  issued,  and  no 
more  issued  than  required  to  build. 

Q.  Then  that  is  capitalized?  A.  That  is  capitalized  by  the 
Kansas  City  Terminal  Company  and  the  interest  of  it  is  a  per- 
petual tax  on  all  the  railroads  entering  Kansas  City,  and  we 
have  to  pay  our  shares  of  it,  and  the  expenses;  and,  as  I  say, 
we  are  paying  our  proportion  of  the  taxes  on  those  magnificent 
facilities  which  are  going  to  be  provided  there,  a  large  por- 
tion of  which  return  us  no  income  whatever. 

Q.  You  had  to  have  terminal  facilities  in  Kansas  City,  did 
you  not?    A.    Yes. 

Q.  You  had  to  get  out  of  the  place  where  you  were,  as 
you  say?    A.    Yes. 

Q.  You  had  to  make  concessions  to  Kansas  City  in  order 
to  get  the  street  vacations  and  concessions  you  deemed  neces- 
sary to  your  new  venture?    A.    Apparently  we  do. 

Q.  And  consequently  you  did  that  which  you  are  about  to 
do  as  a  mere  matter  of  business  expediency,  and  that  is 
capitalized?    A.    Well,  you  can  put  it  that  way  if  you  like. 

Q.  You  say  that  is  not  paid  out  of  income.  Do  you  think  it 
ought  to  be  paid  out  of  income?  A.  I  think  what  we  do  for 
the  vanity  of  the  cities  along  our  lines  they  ought  to  pay  for. 

Q.  And  you  think  that  that  depot  is  a  thing  that  should 
be  paid  for  or  should  have  been  paid  for  out  of  gross  earn- 
ings and  not  the  result  of  new  capitalization?  A.  I  think  it 
is  not  a  matter  which  concerns'  us  except  as  one  of  fifteen  or 
sixteen  railroads.  If  it  was  on  our  line  I  should  say  that  if 
we  put  up  a  depot  of  that  kind  to  tickle  the  vanity  of  any 
particular  community  it  ought  to  be  paid  for  by  the  present 
generation  out  of  current  earnings,  because  40  years  from  now 
it  will  be  entirely  inadequate  and  there  will  have  to  be  an- 
other one,  and  I  do  not  think  posterity  should  be  saddled  with 
that  as  a  debt. 

Q.  Do  I  understand  then  that  the  building  of  that  structure 
so  far  as  your  company  was  involved  in  it,  is  the  result  of  a 
concession  what  you  are  pleased  to  call  the  vanity  of  Kansas 
City  and  not  the  result  of  what  you  believe  to  be  the  result 
of  a  good  business  bargain?  A.  You  can  put  it  that  way 
if  you  want  to. 

Q.     I  am  asking  you  to  put  it,  and  T  am  not  the  one  who  is 


65 

testifying.  "Which  horn  of  that  dilemma  will  you  adopt?  A. 
I  do  not  admit  there  is  any  horn  about  it. 

Q.  All  right.  A.  Kansas  City  held  up  the  corporations 
for  a  franchise  for  a  long  period  of  years. 

Examiner  Beown.     Since  1892. 

Mr.  EiPLEY.  It  is  the  result  of  a  long-protracted  negotiation 
•which  I  was  not  in  except  as  I  heard  reports  of  it  from  time 
to  time  from  those  who  represented  us  there,  and  it  was  finally 
agreed  among  other  things  that  we  would  erect  this  marble 
palace.  Now,  I  am  not  regretting  the  bargain,  and  I  will  not 
say  that  it  might  not  be  a  good  thing  from  the  standpoint  of 
our  own  pride  to  erect  that  sort  of  a  building  anywhere,  be- 
cause we  are  not  illiberal  in  the  matter  of  stations.  We  have, 
I  suppose,  the  finest  lot  of  stations  in  the  United  States,  and  I 
do  not  say  that  I  do  not  believe  in  those  things,  but  I  do  say 
they  ought  not  to  be  left  for  future  generations  to  be  paid  for. 
That  is  all  I  am  talking  about. 

Mr.  Atwood.  Coming  back  to  this  elevation  of  tracks,  does 
that  term  cover  where  viaducts  are  made  over  streets,  so  grade 
crossings  are  avoided?    A.    Yes,  sir. 

Q.  That  is  the  phrase  usually  employed  to^  express  that  en- 
gineering fact?    A.    Yes. 

Q.  There  is  a  considerable  saving  in  the  way  of  damages 
resulting  from  injuries  to  people  at  crossings?  A.  Yes,  sir; 
insignificant. 

Q.  Is  there  not  some  saving  in  the  interruption  to  traf- 
fic?   A.    Yes,  sir,  some. 

Q.  There  are  advantages  which  accrue  as  well  as  cost  in- 
curred?   A.    I  think  I  said  so. 

Q.  And  do  I  understand  the  policy  of  your  road  to  be  that 
all  those  structures  and  the  betterments  of  depots  and  build- 
ing of  smaller,  not  great  depots  like  at  Kansas  City,  that  it  is 
you  policy  to  charge  it  out  of  gross  income  and  then  charge 
it  off  the  books  of  the  company.  A.  No,  not  at  all.  I  did 
not  say  it  all  ought  to  be  but  I  said  a  good  deal  ought  to  be. 

Q.  What  is  the  policy  of  your  company,  whether  or  not 
you  do  capitalize  that  or  charge  it  off?  A.  As  to  the  mere 
questions  of  depots  our  present  policy  is  to  charge  to  operat- 
ing expenses  the  value  of  the  old  structure  and  charge  the 
rest  of  it  to  capital.  That  is  prescribed  by  the  Interstate  Com- 
merce Commission  accounts. 

Mr.  Norton.    It  is  to  be  charged  to  either  capital  or  income. 

Mr.  EiPLEY.  Yes,  but  it  is  not  taken  care  of  out  of  operating 
expenses. 


66 

Mr.  Atwood.  Perhaps  it  is  my  understanding  rather  than 
the  phrasing  of  the  witness  which  leaves  it  a  little  vague  in 
my  mind  as  to  whether  or  not  it  is  or  is  not  capitalized  and 
become  part  of  new  capital.  A.  If  we  substitute  a  $40,000 
depot  for  an  old  one  which  cost  $5,000,  we  charge  the  re- 
maining $35,000  either  to  capital  or  income,  as  we  may  be 
able.  If  we  have  the  income  we  are  likely  to  charge  it  to  in- 
come, but  it  all  appears  on  our  books  as  an  obligation  taken 
care  of  either  by  one  or  the  other.  Under  the  Interstate  Com- 
merce Commission  rules  we  may  charge  it  to  either  capital  or 
income,  but  it  must  show  as  outside  of  operating  expenses. 

Q.  When  charged  to  income  it  is  paid  out  of  profits!  A. 
Yes 

Q.    It  is  not  paid  by  the  acquisition  of  new  capital?    A.    No. 

Q.  And  when  it  is  paid  out  of  profits  it  is  paid  from  the 
gross  revenues  of  the  company?     A.    Yes. 

Q.  And  that  is  derived  from  the  rates  charged  for  passen- 
ger and  freight  traffic?    A.    Yes. 

Q.  In  other  words,  it  is  paid  by  the  shipper  and  traveler; 
that  is  a  fact,  is  it  not?  A.  It  is  when  it  is  paid  for  in  that 
way. 

Q.  And  when  such  does  transpire  the  rates  in  that  par- 
ticular have  been  large  enough  to  pay  for  all  the  cost  of  opera- 
tion and  the  interest  on  the  bonded  debt  and  dividends,  and 
in  addition  to  that  added  so  much  to  the  actual  physical  prop- 
erties of  the  road,  has  it  not?    A.    Yes. 

Q.  And  the  rates  have  been  enough  in  excess  of  the  other 
things  to  do  that  when  such  things  transpire?    A.    Yes. 

Q.  You  said  this  morning  as  I  understood  that  rate  mak- 
ing was  a  judicial  question.  Perhaps  I  misunderstood  you? 
A.    No,  sir. 

Q.  But  if  you  did  say  that,  will  you  be  good  enough  to 
clarify  that  a  bit  and  explain  what  you  meant?  A.  I  said  it 
was  a  judicial  function,  that  here  was  not  any  hard  and  fast 
rule  for  it. 

Examiner  Beown.  What  you  meant  by  the  use  of  the  word 
judicial  was  a  matter  of  judgment? 

Mr.  Ripley.    Yes. 

Mr.  Atwood.     Judicious  is  perliaps  what  he  meant. 

Examiner  Bbown.    Yes,  that  it  was  a  matter  of  judgment. 

Mr.  Ripley.    Well,  yes,  judicious  is  perhaps  a  better  word. 

Mr.  Atwood.  If  the  Commission  will  excuse  us  a  moment, 
there  are  some  other  matters  we  would  like  to  discuss.  Per- 
haps we  can  reserve  them  until  later. 


67 

Examiner  Brown.  I  want  to  say  now,  gentlemen,  that  I 
want  you  to  hasten  along  as  rapidly  as  possible. 

Mr.  Atwood.  Of  course  you  recognize  that  these  are  mat- 
ters that  we  cannot  anticipate  and  we  have  to  do  the  best  we 
can. 

Examiner  Beown-.  Yes.  I  want  yon  to  liasten  along  as  rap- 
idly as  possible,  and  I  give  you  warning  now  that  if  you  do 
not,  we  will  commence  earlier  in  the  morning  and  will  sit  all 
day  and  take  evening  sessions,  and  you  can  govern  yourselves 
accordingly. 

Mr.  Norton.    Is  there  any  further  cross-examination? 

Mr.  Atwood.  As  I  said,  Mr.  Examiner,  it  is  my  purpose 
with  your  permission  when  we  get  some  of  these  things  which 
we  have  not  now  and  which  they  have  kindly  agreed  to  give 
us,  to  ask  some  other  questions,  but  there  is  one  question  in 
my  mind  which  I  can  dispose  of  now. 

Small  Eevenue  from  New  Eates. 

Have  you  stated  the  increased  amount  of  revenue  you  an- 
ticipate will  result  to  your  road  if  these  rates  are  permitted 
to  go  into  effect? 

Mr.  Etpley.    I  said  this  morning  it  was  very  inconsiderable. 

Mr.  Atwood.  The  gross  in  jonr  judgment  is  how  much?  A. 
The  gross  amount  involved? 

Q.  The  gross  increase?  A.  In. the  case  of  our  road  it  is 
so  little  that  our  people  estimate  it  as  being  possibly  $150,000 
to  $200,000  a  year. 

Q.  That  is  not  a  factor  sufficiently  large  to  be  of  serious 
moment  in  the  problem  of  your  railroad  life  ?    A.    Not  at  all. 

i^.  Have  you  had  prepared  by  any  of  your  accountants, 
auditors  or  rate  makers,  whatever  the  proper  designation  is, 
any  schedule  or  computation  which  causes  you  to  arrive  at 
that  conclusion?    A.    No. 

Q.  I  know  of  course  you  cannot  do  all  those  details  your- 
self, and  it  must  be  done  by  somebody.  A.  We  have  not  at- 
tempted to  do  more  than  make  an  estimate  of  it,  but  our 
freight  people  tell  me  that  is  about  where  it  will  land. 

Q.  You  are  now  speaking  of  the  amounts  given  you  by 
those  in  charge  of  the  freight  department?    A.    Yes. 

Q.  That  is  their  estimate,  and  you  have  confidence  in  their 
judgment?    A.    Yes. 

Examiner  Brown.    Tliat  as  I  understand  it  only  incidentally 


68 

affects  your  line  from  Chicago  to  Kansas  City,  the  advanced 
rates  now  under  consideration? 

Mr.  EiPLEY.    Yes. 

Examiner  Brown.  It  would  not  affect  you  west  except 
l^erhaps  as  the  advance  might  be  the  base  for  rates  you  carry 
further  on? 

Mr.  Ripley.    That  is  all. 

Mr.  Atwood.  I  recognize  you  might  not  have  accurate 
knowledge  of  this,  because  it  is  a  special  matter,  but  have  you 
any  knowledge  about  the  shifting  o'f  classifications  within  the 
last  four  or  five  years?    A.    Only  a  general  knowledge. 

Q.  Have  you  any  such  knowledge  which  enables  you  to 
know  what  has  been  the  increase  of  revenue  as  the  result  of 
raising  the  classification  of  third  class  into  second  and  second 
into  first?  A.  No.  I  think  some  such  computations  have 
been  made. 

Q.  I  think  that  is  all,  with  the  privilege  you  have  been  good 
enough  to  give  me  of  asking  some  questions  tomorrow. 

Mr.  Thorne.  I  have  a  few  questions.  You  have  given 
some  extended  testimony  this  morning  in  regard  to  the  in- 
crease in  operating  expenses  including  labor,  taxes  and  safety 
appliances.  I  do  not  know  whether  you  have  included  taxes 
as  operating  expenses ;  increased  cost  of  engines  and  various 
other  items.  Have  you  made  any  totals  of  those  increases 
for  any  definite  period  of  time,  or  is  there  just  a  general  sum- 
mary of  different  increases  in  cost  that  you  have  named?  A. 
You  are  speaking  of  material  or  labor? 

Q.    All,  have  you  totalled  the  whole  increase? 

Mr.  Norton.    Another  witness  will  do  that. 

Mr.  Ripley.  We  will  give  you  another  witness  who  will  an- 
swer that  question. 

Mr.  Thorne.  You,  yourself,  then,  have  made  no  compari- 
son of  increases  in  expenses  to  increase  in  earnings?  A.  I 
have  read  them  there,  but  do  not  feel  competent  enough  to  tes- 
tify. 

Q.  Do  you  know  whether  your  expenses  have  increased 
more  than  your  earnings  in  recent  years?  A.  I  know  that 
our  expenses  have  increased  more  than  our  earnings. 

Q.    You  say  the  aggregate  amount?    A.    Yes. 

Q.    During  how  long  a  period  of  time?    A.    Take  last  year. 

Q.    It  was  greater  than  ten  years  ago?    A.    Oh,  yes. 

Q.  You  say  your  margin  of  earnings  above  expenses  last 
year  was  greater  or  loss  than  ten  years  ago?    A.    Our  margin 


G9 

of  expenses  above  earnings  last  year  was  much  greater  than 
it  was  ten  years  ago. 

Q.  Then  your  earnings  have  increased  much  more  rapidly 
than  your  expenses  in  the  past  ten  years'?  A.  No,  that  does 
not  follow.  We  have  a  very  much  larger  interest  charge.  We 
have  $32,500,000  more  in  the  property  now  than  then. 

Q.  I  was  not  talking  about  interest  as  compared  with  the 
investment,  but  about  gross  earnings.  Are  not  your  net  earn- 
ings greater  than  they  were  ten  years  ago,  or  last  year,  or 
any  year  prior  to  it?    A.    No. 

Q.  What  were  your  net  earnings  last  year?  A.  Our  net 
earnings  last  year  amounted  to — you  are  talking  about  the 
year  ending  the  1st  of  .Tulv,  the  year  1910? 

Q.    Yes.    A.    $32,000,000. 

Mr.  Lyox.     That  is  system  figures? 

Mr.  Ripley,     That  is  system  figures,  net. 

Mr.  Thorne.    Is  that  net  earnings  or  income?    A.    Net. 

Q.    Net  earnings?  A.    Yes. 

Q.  What  were  they  ten  years  ago?  A.  Ten  years  ago 
would  be  in  1900;  $17,000,000. 

Q.  So  they  have  increased  about  $15,000,000  during  that 
time,  have  they  not?    A.    Yes. 

Q.    Almost  double?    A.    Yes. 

Q.  You  have  described  increases —  A.  Our  mileage  has 
doubled  also. 

Q.    Your  mileage  has  doubled  also?    A.    Yes. 

Q.  Have  you  your  net  earnings  per  mile  last  year?  A.  Not 
on  this  statement. 

Q.  Ending  June  30th,  1910.  A.  I  know  substantially  what 
they  were,  however. 

Q.     What  were  they?    A.     $3,148. 

Q.  What  were  they  ten  years  ago?  A.  Very  much  less. 
I  should  say — I  will  not  attempt  to  sa}',  but  somewhere  in 
the  neighborhood  of  $2,338,  I  think. 

Q.  Your  net  earnings  per  mile  of  railroad  have  increased 
very  greatly  in  recent  years  compared  with  former  years, 
have  they  not?    A.    Our  net  earnings? 

Q.    Yes.    A.    Yes,  they  have  increased  a  good  deal. 

Q.  Then  these  added  expenses  which  you  have  stated  have 
been  added  during  recent  years  in  proportion  to  traffic 
handled,  were  really  decreased  expenses,  were  they  not?  A. 
No,  they  were  not. 

Q.  Your  operating  expenses  today  in  proportion  to  your 
traffic  are  less  than  your  operating  expenses  in  proportion  to 


70 

your  traffic  last  year  or  any  prior  year,  are  tliey  not?  A.  Our 
expense  of  hauling  a  given  number  of  net  ton  miles  is  less, 
that  is  true;  but  as  I  have  already  stated,  it  has  required  a 
vast  amount  of  money  to  accomplish  that. 

Q.  Yes,  that  is  true.  You  have  given  here  a  statement  of 
the  amount  of  money  you  had  invested  in  your  property  for 
different  years.  Did  vou  yourself  verifv  this  statement?  A. 
No. 

Q.  "Why  I  want  to  know  is,  what  were  the  factors  which 
entered  into  the  value?  For  instance,  does  this  $579,000,000 
you  give  for  3910  on  Exhibit  No.  1,  represent  increased  cost 
of  the  facilities  and  all  these  other  matters  you  have  testified 
to?  A.  I  can  tell  you  what  it  ought  to  represent,  that  is  I 
can  tell  you  about  how  much  money  has  been  appropriated 
each  year. 

Mr.  Norton.    What  year  did  you  speak  of? 

Mr.  Thorne.    The  year  ending  June  30th,  1910. 

Mr.  Norton.    What  is  your  question  about  June  30th,  1910? 

Mr.  Thorne.  T  will  withdraw  the  question,  as  he  does  not 
answer  the  question  the  way  I  gave  it.  I  will  get  at  it  another 
way.  What  was  your  mileage  in  1910,  system  mileage?  A. 
About  10,250  miles,  average. 

Q.  Your  average  cost  of  your  property  at  the  pi'esent  time 
per  mile  is  greater  than  it  was  ten  years  ago?    A.    Yes,  sir. 

Q.  And  the  cost  bears  what  relation  to  your  capitalization, 
any  at  all  at  the  present  time?  A.  About  $250,000,000  of  our 
total  capitalization  of  $579,000,000  is  money  that  we  have 
spent  in  the  last  15  years  and  which  we  know  all  about  and 
know  where  it  went,  that  it  represents  dollar  for  dollar  cash. 

Capitalization  and  Earnings. 

Q.  Your  total  capitalization  at  the  present  time  is  $579,- 
000,000,  is  it?    A.    About  that. 

Q.  Then  it  approximately  represents  the  investment?  A. 
Yes,  it  represents  exactly  the  investment  of  the  present  com- 
pany. Now,  I  cannot  go  back  far  enough  into  the  annals  of 
the  old  company  to  say  exactly  what  relation  its  capitaliza- 
tion bore  to  its  cost,  but  substantially  the  property  has  cost 
all  its  capitalization — all  it  is  capitalized  at. 

Q.  You  stated  in  your  testimony  that  your  income  has  been 
for  the  year  ending  Juno  30th.  1910,  approximately  six  per 
cent,  on  that  investment.     A.    No,  sir;  4f. 

Q.    5.58  per  cent. 


71 

Mr.  Bailey.     1910  only? 

Mr.  KiPLEY.  I  thought  you  said  the  average,  that  is  right; 
5.58,  that  is  right. 

Mr.  Thorne.  Your  idea  is  however  that  that  ought  to  be 
about  12  per  cent.?    A.    Yes,  it  ought  not  to  be  less. 

Q.  It  ought  not  to  be  less  than  12  per  cent.?  A.  From  10 
to  12. 

Q.  And  this  increase  of  $150,000  to  $200,000  which  you 
speak  of  is  merely  a  step  in  that  direction,  is  it  not?  A.  Oh, 
you  mean  this  increase  in  rates? 

Q.    Yes.    A.    That  is  merely  a  step. 

Q.  You  want  ultimately  to  make  that  other  possible,  if  you 
can?    A.    I  do. 

Q.  Your  idea  is,  then,  that  the  revenues  of  your  railroad 
ought  to  be  increased  at  the  present  time  about  $32,000,000  a 
year?    A.    Oh,  no. 

Q.  Well,  in  the  income  of  $32,000,000  at  the  present  time, 
and  it  is  only  six  per  cent.,  and  you  say  it  ought  to  be  12  per 
cent. 

Mr.  NoRTox.    His  testimony  is  on  the  capital  stock. 

Mr.  Thorne.  If  that  is  6  per  cent,  your  idea  is  you  ought 
to  have  another  six  per  cent,  to  put  back  into  improvements? 
A.  You  are  mistaken.  What  I  said  is  we  ought  to  earn  at 
least  six  per  cent,  on  our  common  stock.  Common  stock  rep- 
resents only — this  $32,000,000  represents  only  a  portion,  only 
$263,000,000  of  common  stock  out  of  the  $579,000,000.  You 
have  confused  capitalization  and  common  stock. 

Q.  Your  idea  is  not  that  you  should  earn  12  per  cent,  on 
that  investment?    A.    12  per  cent,  on  the  stock  is  what  I  said. 

Q.    On  the  stock?    A.    Yes. 

Q.  And  your  idea  is  that  the  stock  ought  to  represent  the 
investment,  is  it  not?  You  said  that  a  few  moments  ago?  A. 
Oh,  no.  I  said  I  would  like  to  see  all  the  capitalization  turned 
into  stock  and  would  like  to  see  future  capitalization  made  by 
sales  of  stock  rather  tlian  by  sales  of  bonds. 

Q.  Well,  then,  yon  maintain  at  this  time  that  the  real  in- 
crease ought  to  be  six  per  cent,  on  about  half  of  that  capitali- 
zation which  you  have,  that  being  in  the  neighborhood  of  $15,- 
000,000  or  $16,000,000  a  year.  A.  It  would  represent  an  in- 
crease of  about  three  per  cent,  on  $263,000,000,  that  would  be 
about  $7,000,000  a  year  that  we  ought  to  have  more  money. 

Q.  And  that  money  should  be  put  back  into  the  property, 
that  is  your  idea?    A.    Yes,  sir. 


72 

Q.  And  then,  later  you  should  increase  the  capitalization 
of  your  property  by  that  amount?  A.  I  did  not  say  that  at 
all.  I  said  that  is  what  ought  to  go  into  the  property  without 
being  capitalized. 

Q.  At  any  given  time  what  will  be  a  fair  method  of  de- 
termining what  your  earnings  should  be  in  comparison  to 
your  stock?  At  the  present  time  what  should  be  that  rela- 
tion? A.  Well,  my  contention  has  been  that  we  ought  to  earn 
enough  so  that  we  can  do  the  things  that  are  required  of  us 
out  of  current  income  without  being  obliged  to  mortgage  the 
future,  which  we  never  have  been  able  to  do  and  the  other 
railroads  are  not  able  to  do. 

Q.  With  regard  to  these  improvements  which  you  refer  to 
that  do  not  earn  revenue  or  make  any  earnings  for  your  road, 
these  deposits  in  Kansas  City  and  Chicago,  are  they  of  a 
temporary  nature  or  permanent  nature?  A.  They  are  per- 
manent as  much  as  anything  of  that  kind  can  be  permanent. 

Q.  So  that  the  next  generation  will  get  some  enjoyment 
the  same  as  the  present?  A.  I  do  not  know  about  that.  I 
remember  when  all  these  depots  were  built  in  Chicago  and 
they  were  very  substantial  buildings  and  it  was  supposed  they 
would  last — 

Q.  Is  it  your  expectation  that  this  railroad  investment  of 
nearly  $30,000,000  or  whatever  it  is,  will  be  torn  down  before 
the  next  generation?  A.  I  think  it  is  not  at  all  impossible 
that  the  entire  business  will  be  obsolete  in  40  years.  I  have 
seen  these  stations  built  25  or  30  years  ago,  and  they  are  now 
being  condemned  by  everybody  who  uses  them  and  there  is  a 
constant  howl  in  the  papers  for  a  new  station. 

Q.  So  the  marble  palace  at  Kansas  City  you  expect  to  be 
removed  in  40  years? 

Mr.  Norton.    He  did  not  say  that. 

Mr.  Ripley.    No,  but  it  is  not  impossible,  however. 

Mr.  Thorne.  The  probabilities  are  not  that  at  all?  A. 
Stranger  things  have  happened.  No,  I  do  not  think  the  prob- 
abilities are. 

Q.  And  the  probabilities  are  that  the  marble  palace  you 
are  speaking  of  will  be  enjoyed  by  the  next  generation  as  well 
as  the  present,  and  the  benefits  will  be  derived  from  it,  is  not 
that  the  probability?  A.  I  think  the  probability  is  that  that 
will  be  there  40  years  from  now,  that  is  the  nucleus  of  it  will 
be  there.    I  expect  it  will  be  twice  as  big. 

Q.    If  that  will  be  there  for  the  next  generation,  should  not 


73 

the  next  generation  bear  the  burden  of  building  that  depot? 
A.    Yes,  help;  that  is  exactly  what  I  said. 

Q.  Should  not  it  then  be  capitalized!  A.  In  part,  yes,  but 
it  is  all  capitalized  as  it  stands,  and  I  said  it  should  not  be  all 
capitalized. 

Q.  What  portion  of  it  should  not  be  capitalized?  A.  I 
should  say  that  if  you  assume  that  in  40  years  or  50  years  it 
will  be  obsolete — 

Q.  But  we  are  not  assuming  that.  A.  Well,  say  100  years. 
I  should  say  that  a  certain  portion  of  it,  the  capital  should  be 
amortized  by  spending  so  much  money  every  year  on  prin- 
cipal. 

Q.  But  the  cost  of  building  that  depot  should  be  spread 
out  over  that  100  years  1    A.    Surely. 

Q.  So  that  the  cost  of  these  terminals  should  not  be  borne 
out  of  the  earnings  last  year?  A.  Oh,  no,  nobody  has  pro- 
posed such  a  thing  as  that.    I  think  that  is  quite  true. 

Q.  But  should  be  spread  out  over  quite  a  period  of  time? 
A.  Yes.  But  the  truth  is  that  the  necessities  of  the  railroads 
as  they  are  now  involve  the  borrowing  of  the  entire  money 
and  throwing  the  entire  burden  on  posterity,  and  bonds  are 
sold  for  50  years  and  do  not  come  due  until  then. 

Q.  Do  you  have  any  detailed  statistics  there  in  regard  to 
the  increase  in  your  net  earnings,  or  are  you  going  to  give 
that  later?  A.  We  will  give  you  the  increase  in  net  earn- 
ings, increased  expenses,  and  all  that  sort  of  thing. 

Mr.  NoETON".    By  another  witness. 

Mr.  Lyox.  In  regard  to  this  proposition  of  a  station  at 
Kansas  City,  do  they  jorovide  any  fund  for  retirement  of  those 
bonds?    A.    No. 

Q.    They  just  put  a  burden  on  future  generations?    A.  Yes. 

Q.  You  have  expressed  the  view  several  times  here  that 
that  should  be  borne  out  of  present  earnings  of  the  compan- 
ies.   A.    A  proportion  of  it. 

Q.    I  mean  a  proportion?    A.    Yes. 

Q.  After  that  is  borne  out  of  the  present  earnings  of  the 
companies  should  that  be  capitalized?  A.  Well,  that  par- 
ticular class  of  expenses  in  so  far  as  it  is  borne  out  of  earn- 
ings, no,  I  think  not.  I  think  a  good  many  railroad  men  might 
differ  with  me  on  that,  but  I  think  there  should  be  a  very  lib- 
eral expenditure  of  earnings  uncapitalized  for  all  those 
things. 

Q.    And  when  that  property  is  then  paid  for  by  the  public 


74 

through  the  freight  rates,  that  should  not  be  considered  in 
making  the  future  freight  rate,  the  investment  the  public  has 
made?  A.  It  should  be  disregarded  as  an  investment  of 
course,  if  it  does  not  appear  in  the  cost  of  property. 

Q.  Does  that  apply  to  other  improvements  which  your  com- 
pany makes  on  its  lines?    A.    It  ought  to. 

Q.  Then  it  is  your  opinion  that  enough  should  be  collected 
from  the  public  from  year  to  year  to  gradually  pay  for  the 
railroad?    A.    Oh,  no,  no. 

Q.  Well,  let  us  understand  each  other  then.  A.  That 
would  be  of  course  an  impossibility.  I  said  that  the  ideal 
way,  or  the  way  I  would  do  things  if  I  could,  would  be  to  col- 
lect from  the  public  perhaps  as  much  each  year  as  would  equal 
an  amount  of  dividends  we  paid,  and  to  invest  it  in  the  prop- 
erty without  any  additional  capitalization.  Now,  that  will  not 
take  care  of  the  things  that  have  got  to  be  done  and  won't 
come  anywhere  near  it.  Assume  if  you  please  that  we  pay 
$10,000,000  a  year  in  dividends,  and  we  collected  another  $10,- 
000,000  and  put  it  into  the  propertv,  we  would  also  have  to 
borrow  $40,000,000  or  $50,000,000  a  year  for  other  purposes 
in  addition. 

Q.  But  take  the  condition  of  a  road,  we  are  assuming  as 
the  case  where  you  have  a  dividend  of  $10,000,000  and  you 
collect  from  the  public  an  additional  $10,000,000,  and  that 
pays  for  all  the  necessary  improvements  demanded  by  that 
particular  line  of  railway.    A.    Well,  it  might. 

Q.    I  said  assume  that  it  would.    A.    Yes. 

Q.  Then  in  the  future,  in  determining  the  rate,  you  would 
not  consider  the  value  of  that  property  acquired  through  the 
$10,000,000  taken  from  the  public  pre^'iously  for  that  pur- 
pose?   A.    No. 

Q.  And  then  your  rates  would  be  based  upon  the  original 
investment?  A.  My  rate  would  not  be  based  on  any  invest- 
ment whatever. 

Q.  I  understand,  but  I  mean  from  those  who  possibly  have 
a  different  view  and  following  the  usual  method  of  determin- 
ing what  should  be  the  return  upon  joroperty  or  an  invest- 
ment, they  do  take  into  consideration,  and  is  to  that  class  of 
people  you  would  not  have  them  consider  this  money  taken 
from  the  public  and  invested  for  public  purposes?  A.  No, 
the  public  would  get  the  benefit  of  it  and  get  much  the  best 
end  of  it. 

Q.  It  is  their  money  and  I  hey  have  invested  it,  and  you 
would  not  ex]iect  any  return  upon  it?    A.    No. 


75 

Q.  Therefore  if  any  carrier  in  the  past  has  collected  more 
than  what  would  be  termed  a  reasonable  return  upon  the  in- 
vestment, and  had  reinvested  those  unreasonable  returns  in 
the  property,  would  you  expect  the  company  to  earn  a  divi- 
dend from  those  investments?  A.  I  do  not  think  there  is 
any  such  instance  on  record.  I  do  not  know  of  anything  of 
that  kind. 

Q.  I  know,  of  course.  Possibly  you  do  not  know  of  such 
an  instance,  but  there  might  be  one.  It  has  been  so  stated, 
and  I  think  some  of  the  companies'  reports  possibly  will  show 
it.  But  assuming  it  is  a  fact,  would  you  think,  sitting  as  a 
public  officers  in  fixing  the  rates  for  the  people  from  whom 
these  unreasonable  rates  have  been  collected,  that  you  should 
fix  a  future  rate  upon  the  capital  acquired  through  those  un- 
reasonable charges?  Will  you  take  it  thus  far?  A.  Perhaps 
not,  if  it  was  a  clear  case  that  there  had  been  any  unreason- 
able charges.  I  refuse  to  consider  the  possibility  that  there 
has  been  any  such  things  as  unreasonable  charges  in  this 
country  up  to  this  time.  I  mean  charges  that  are  unreason- 
able in  themselves.  I  do  not  say  that  there  may  not  have 
been  discriminations  here  and  there  as  to  localities. 

Q.  You  have  given  your  definition  of  a  reasonable  rate 
and  it  has  been  gone  into  quite  at  length  and  I  shall  make 
my  examination  as  brief  as  possible;  but  you  say  that  rate 
under  which  the  traffic  moves  freely,  regardless  of  cost  and 
investment.  Your  company  had  advanced  a  large  number  of 
rates  applicable  in  the  territory  between  Chicago  and  Kan- 
sas City  which  are  now  under  investigation?    A.    Yes. 

Q.  In  determining  what  those  rates  should  be  between  all 
the  points  and  upon  all  the  commodities  involved  is  that  the 
factor  which  you  considered,  the  value  to  the  shippers?  A. 
I  do  not  think  anything  else  has  been  considered. 

Q.  Well,  did  you  consider  that  as  a  whole,  or  did  you  take 
up  each  case?  A.  I  think  it  has  been  considered  as  to  each 
case.  Now,  personally  I  have  not  considered  those  things  ex- 
cept in  gross. 

Q.  But  you  think  your  officials  and  your  subordinates  took 
up  each  of  these  cases  and  considered  that  the  value  of  the 
service  had  increased  since  June  1st,  which  T  believe  was  the 
time  of  the  increase  of  the  rates.     A.    I  think  they  did. 

Q.  Can  you  tell  me  how  they  arrived  at  that  conclusion, 
what  were  the  factors  which  convinced  them  that  the  value  to 
the  shipper  had  increased?  A.  I  think  perhaps  I  did  not 
understand  your  question.     T  do  not  think  that  they  corisid- 


76 

ered  that  the  value  of  the  service  to  the  shipper  had  increased 
between  two  days  or  between  two  months,  but  I  do  think  that 
they  thought  that  tlie  price  they  were  charging  for  their  serv- 
ice was  inadequate  considering  the  value  of  the  service  to  the 
shipper,  and  that  it  had  been  inadequate  for  a  long  time. 

Mr.  Norton.  You  stated  on  the  direct  examination  that  the 
rates  had  gone  down  too  low. 

Mr.  Ripley.     Yes. 

Examiner  Brown.  That  is,  putting  it  in  your  own  words, 
you  now  consider  that  the  traffic  will  bear  the  higher  rates 
which  you  have  fixed,  is  that  the  idea? 

Mr.  Ripley.    That  is  the  idea. 

Value  of  Service  to  Shippers. 

Mr.  Lyon.  Then  I  understand  so  far  as  the  Santa  Fe  Com- 
pany is  concerned,  from  all  your  testimony  given  here  today, 
that  this  increase  in  rates  is  not  asked  for  by  your  company, 
or  proposed  by  your  company,  because  of  any  increased  oper- 
ating expenses  but  solely  because  in  the  opinion  of  the  offi- 
cials of  your  company  the  value  to  the  shipper  has  changed  in 
the  last  few  years.  A.  No.  In  the  first  place  I  think  that 
the  rates  are  lower  than  were  ever  warranted  on  the  theory 
of  the  value  to  the  shipper.  I  think  they  have  been  forced 
down  in  the  past  by  pressure  and  by  competition,  so  I  do  not 
think  the  value  of  the  service  has  changed  to  the  shipper  ex- 
cept that  the  commodities  are  all  worth  more  money;  conse- 
quently the  freight  is  a  smaller  percentage  of  the  cost  than  it 
ever  was  before.  To  that  extent  the  value  of  the  service  to 
the  shipper  has  changed,  but  as  I  stated  in  my  first  examina- 
tion, one  moving  cause  was  the  fact  that  we  needed  more 
money. 

Q.  Then  I  understand  your  position  is  as  now  stated  chat 
in  the  past  you  think  the  rates  in  this  territory  have  not  been 
sufficiently  high?    A.    I  think  so,  yes. 

Q.  And  that  now  is  the  time  at  which  they  should  be  raised? 
A.  I  think  it  ought  to  have  been  done  long  ago,  but  now  is 
better  than  later. 

Q.  And  those  rates  have  largely  been  fixed  in  the  past 
when  there  was  no  regulation  of  carriers  in  any  substantial 
manner?    A.     That  is  true. 

Q.  And  in  your  opinion  the  result  of  operating  railroads 
in  this  section  without  regulation,  or  in  the  absence  of  regu- 


77 

lation,  has  resulted  in  not  making  a  proper  return  to  the  car- 
riers!   A.    I  do. 

Q.  And  that  now  that  we  have  regulations  they  should  he 
put  upon  a  paymg  hasis,  is  that  your  opinion!    A.    Yes. 

Q.  If  you  were  sitting  as  the  Interstate  Commerce  Com- 
mission to  pass  upon  the  reasonableness  of  these  proposed 
advances,  regarding  the  shipping  public  and  the  carriers  in- 
terested, how  would  you  determine  this  value  of  the  service? 
What  method  would  you  go  through!  We  are  obliged  to 
have  something  to  go  upon  here.  Whether  this  matter  of  regu- 
lation is  right  or  wrong,  that  is  a  burden  placed  upon  the  In- 
terstate Commerce  Commission. 

Mr.  XoRTOx.    He  has  admitted  it  to  be  right — • 

Mr.  Lyox.  I  will  conduct  the  examination,  Mr.  Norton. 
And  we  have  it  to  do.  I  think  heretofore  it  has  been  generally 
considered  that  the  cost  of  performing  the  service  and  the 
investment  in  those  things  which  are  used  in  the  public  serv- 
ice were  elements  which  should  be  taken  into  consideration, 
but  you  say  no.    A.    I  did  not — 

Q.  How  can  you  arrive  at  it!  A.  I  did  not  mean  to  be 
understood  as  saying  no  to  the  proposition  that  all  those  things 
would  have  to  be  considered,  and  I  do  not  think  I  said  so. 
I  said  they  were  factors  to  be  considered,  but  in  my  judgment 
inconsiderable  and  minor  factors  to  be  considered.  The  ques- 
tion you  ask  is  a  very  difficult  one  to  answer,  that  is,  the 
question,  sitting  as  a  judge  between  the  shipper  and  the  rail- 
roads, how  I  would  attempt  to  judge  as  to  the  value  of  the 
sendee  rendered  to  the  shipper.  But  I  think  that  an  inquiry 
as  to  the  value  of  the  commodity  in  question,  the  places  where 
it  is  manufactured,  the  places  where  it  is  sold,  the  prices  it  is 
sold  at  by  the  manufacturer  and  by  the  merchant,  the  character 
of  the  product  itself  and  the  competition  that  it  meets  with 
from  other  sections  of  the  country,  are  far  more  important 
factors  than  the  question  of  the  capitalization  of  the  rail- 
roads or  their  cost  of  doing  business.  The  freight  is  such  a 
bagatelle,  it  is  such  an  infinitesimal  proportion  of  the  value  of 
most  commodities  that  there  is  not  the  slightest  danger  of 
getting  any  rate  too  high  from  the  standpoint  of  what  it  is 
worth  to  the  shipper.  I  do  not  mean  to  state  that  without 
qualifications.  There  will  be  certain  qualifications  to  that; 
but  as  a  general  principle  that  is  so.  You  take  any  of  the 
necessities  of  life.  Take  if  you  please  flour;  an  addition  of 
5  cents  per  100  pounds  to  a  flour  rate  is  $1  a  ton;  that  is  a 
very  large  item  to   the  railroad  companies.     What  does  it 


78 

amount  to  iu  the  menage  of  any  individual  family?  The 
average  family  of  five  persons  will  use  how  many  barrels  of 
flour  a  year?    Two  a  year! 

Mr.  Dawes.  (Of  the  Chicago,  Burlington  &  Quincy.)  A 
barrel  per  person  per  year. 

Mr.  KiPLEY.  That  is  five  barrels;  that  would  be  50  cents 
on  the  flour  they  would  use,  assuming  they  paid  it.  Nobody 
has  suggested,  that  I  know  of,  the  raising  of  the  rate  on  flour 
$1  a  ton  or  5  cents  per  100  pounds.  Nevertheless  that  is  all 
it  would  amount  to.  It  cuts  no  figure  whatever.  The  rate  on 
dry  goods  is  a  large  item  to  one  big  wholesale  dealer,  what  he 
pays  on  his  dry  goods.  It  is  no  item  at  all  to  the  consumer, 
and  he  would  not  know  of  it  if  he  was  not  told  of  it.  Take 
heavier  things  like  a  keg  of  nails,  which  weighs  100  j)ounds; 
nobody  would  ever  dream  of  raising  the  rate  on  nails,  so  far  as 
I  know,  more  than  2-1/2  cents;  but  supposing  they  raised  it 
5  cents  per  100  pounds,  one-fifth  of  a  cent  a  pound  on  nails, 
and  other  things  in  proportion. 

How  TO  Fix  Eates. 

Mr.  Lyox.  Do  I  understand  from  that,  then,  that  if  the 
Commission  should  make  an  investigation  as  you  say  of  every 
commodity  which  these  carriers  are  now  raising  the  rates 
upon  between  all  points,  and  investigate  the  labor  question  and 
the  manufacturing  question  and  all  the  infinite  number  of 
questions  which  enters  into  the  commercial  conditions  of  the 
country  and  should  further  investigate  and  find  that  the  in- 
creased cost  of  a  pair  of  shoes  to  the  consumer  is  small,  hav- 
ing determined  that  as  a  fact,  that  it  is  small,  that  therefore 
they  should  permit  the  rates  to  go  into  effect?  A.  Yes,  cer- 
tainly. When  you  consider  that  course  I  am  discussing  merely 
these  advances  now  and  trying  to  impress  the  idea  of  how  in- 
finitesimal they  are — there  is  nothing  which  has  been  asked 
for  that  will  in  the  slightest  degree  impede  commerce. 

Q.  That  is  your  conclusion?  A.  Yes.  Now  let  the  Com- 
mission demonstrate  whether  that  is  true  or  not. 

Q.  You  say  if  the  Commission  should  find  when  divided  up 
among  the  ninety  millions  of  people  in  this  country,  that  the 
cost  of  the  increase  to  each  one  on  each  particular  commodity 
is  small,  therefore,  thev  should  allow  the  increases  to  take  ef- 
fect?   A.    Yes. 

Q.  That  is  your  final  conclusion?  A.  Yes,  I  do  not  mean 
by  that  they  should  deliberately  levy  a  tax  on  ninety  million 


79 

people  for  the  benefit  of  bloated  corporations;  but  consider- 
ing the  general  conditions  of  the  railroad  business  and  the  in- 
finitesimal burdens  that  these  proposed  advances  lay,  there 
should  not  be  any  hesitation. 

Q.  But  if  the  bloated  corporations,  to  use  your  own  term, 
impose  this  burden,  you  think  the  Commission  should  not 
interfere  with  it?    A.    I  certainly  do. 

Q.  You  have  stated  very  positively  here  that  the  question 
of  the  rate  is  a  very  infinitesimal  part  of  the  movement  of 
freight  in  this  country?     A.     Yes. 

Q.    Do  you  speak  that  advisedly?    A.    Yes. 

Q.  Do  you  know  the  cost  of  coal  at  the  mine,  at  the  mouth 
of  the  mines  in  Virginia?    A.    Well — 

Q.  Well,  just  answer  those  questions.  A.  Yes,  I  do. 
Well,  no,  I  won't  say  I  do  either. 

Q.  Do  you  know  the  cost  of  coal  at  the  mouth  of  the  mine 
in  Illinois?    A.    Yes. 

Q.  How  much  has  your  company  bought  coal  for  at  the 
mouth  of  the  mines  in  Illinois?    A.    From  $1.40  to  $1.65. 

Q.  Would  you  be  surprised  to  know  that  some  of  the  com- 
panies have  bought  it  as  low  as  40  to  60  cents  a  ton  in  Illinois 
at  the  mouth  of  the  mines?  A.  No,  I  should  not,  because  take 
coal  in  the  southern  part  of  the  state  it  is  mined  very  cheaply. 
I  suppose  in  the  Big  Muddy  District  it  is  mined  very  cheaply. 

Q.  That  has  been  the  testimony  of  your  own  railroad's 
witnesses  in  cases  I  have  heard.  A.  Yes,  I  suppose  that  is 
right. 

Q.  Do  you  know  of  the  cost  of  that  coal  laid  down  in  Chi- 
cago?   A.    Yes,  in  a  way. 

Q.  What  is  it?  A.  It  has  been  $2.10  or  $2.05;  I  suppose 
now  $2.20  to  $2.25  perhaps. 

Q.  The  cost  of  the  commodity  at  the  point  where  it  is  pro- 
duced is  60  cents,  and  laid  down  in  Chicago  it  is  $2.20,  and 
you  say  the  diiference  between  60  cents  and  $2.20  is  not  ma- 
terial to  the  shipper,  is  that  your  position?  A.  No.  In  the 
first  place  what  I  was  talking  about  was  the  rates  on  mer- 
chandise, not  the  rates  on  coal  and  lumber,  and  they  have  not 
been  discussed  or  touched  upon  and  they  are  not  in  this  in- 
quiry. 

Q.  This  is  a  commodity  list  which  is  involved  here.  A. 
Coal? 

Q.  I  do  not  know  whether  coal  is  involved  particularly. 
A.    No,  not  at  all. 

Q.  The  cattle  rate  is  involved.  A.  The  cattle  rate  is  in- 
volved. 


80 

Q.  And  the  grain  rates  are  involved.  A.  To  some  extent, 
yes. 

Mr.  Lynde.  (Of  the  Chicago  &  Northwestern  Railroad.) 
The  cattle  rates  are  only  involved  in  a  very  small  way;  it  is 
the  rate  from  Kansas  City  to  St.  Louis. 

Examiner  Browx.    I  do  not  know  whether — 

Mr.  Lyon.  It  is  not  important.  I  know  there  are  a  vast 
number  ofoommodities.  I  am  not  only  handling  this  case,  but 
the  Oflficial  Classification  case  also.  A.  I  did  not  mean  to 
say  that  the  freight  rate  did  not  cut  a  figure  on  coal,  because 
it  does.  I  was  talking  about  merchandise  and  specified  mer- 
chandise particularly. 

Q.  Your  answers  then  are  limited  to  the  question  of  mer- 
chandise?   A.    Oh,  yes. 

Q.  And  it  is  only  in  those  cases — and  by  merchandise  I 
suppose  you  mean  first  class  freight.  A.  All  classes  and 
commodities. 

Q.     Some  commodities  move  under  classes?    A.    Yes,  sir. 

Q.  Steel  moves  in  Official  Classification  territory,  fifth 
class.  A.  Yes.  What  we  are  discussing  now  is  the  number 
of  commodities  which  come  under  this  tariff. 

Again  the  Public's  '' Burden. '^ 

Q.  You  have  been  giving  some  general  testimony  here,  and 
it  left  the  impression  on  my  mind  that  the  freight  rate  was  a 
very  small  matter  to  the  public.    A.    So  it  is. 

Q.  And  on  all  commodities,  taking  them  as  a  whole.  A. 
Oh,  no,  because  on  coal  and  lumber  and  brick  and  a  lot  of 
those  things  it  makes  quite  a  difference;  but  taking  practi- 
cally all  package  freight,  it  does  not  cut  any  figure. 

Q.  Is  not  package  freight  a  very  small  part  of  the  move- 
ment of  freight  in  this  country?  A.  No,  it  is  quite  a  con- 
siderable part. 

Q.  What  percentage  of  it  is  package  freight?  A.  It  is 
pretty  hard  to  speak  of  that  without  getting  up  figures,  which 
I  have  not  got  by  me. 

Q.  Is  it  not  a  fact  that  with  many  of  the  railroads  of  this 
country  that  more  than  50  per  cent,  of  their  traffic  is  coal? 
A.  Yes,  but  that  is  not  true  of  any  of  the  railroads  in  this 
territory  we  are  talking  about. 

Q.  Then  you  want  this  testimony  restricted  particularly 
to  this  question  of  merchandise  when  you  say  that  that  should 
be  considered?    A.    Yes. 

Q.    You  do  know  as  a  matter  of  fact  that  the  citrus  fruit 


81 

moving  from  the  west  to  the  east,  for  instance,  the  freight 
rate  is  a  very  large  part  of  the  value  of  the  commodity?  A. 
"Well,  not  very.  Of  course  that  moves  a  very  long  distance 
and  is  quite  an  item. 

Q.  And  all  the  perishable  products  from  the  south,  the 
freight  rate  constitutes  a  very  large  part  of  the  movement? 
A.    I  think  so.    Those  things  are  not  in  controversy  here. 

Q.  And  nearly  all  the  staples  of  the  country,  the  freight 
rate  is  a  large  part  of  the  final  cost  to  the  consumer?  A.  I 
"would  not  say  so  as  to  all  staples. 

Q.  What  would  it  be  with  wheat  and  corn  ?  A.  Well,  with 
wheat  $1  a  bushel,  and  the  maximum  rate  possible  20  cents, 
that  is  the  maximum,  but  the  bulk  of  it  moves  at  very  much 
less  than  that,  about  one-fifth  in  that  case. 

Q.  What  is  the  corn  rate?  A.  The  corn  rate  I  suppose 
the  average  rate  all  through  this  territory  is  maybe  as  high 
as  18  cents  per  100. 

Q.  And  the  value?  A.  About  60  cents  a  bushel.  That  18 
cents  would  cover  about  two  bushels  or  about  9  cents,  and  any 
proposed  advance — an  advance  of  3  or  4  cents  a  hundred 
would  cut  a  very  small  percentage  on  the  value  of  the  corn. 

Q.  Now,  the  lumber  moves  into  this  territory  from  very 
long  distances,  does  it  not?    A.    Yes. 

Q.  And  the  rate  is  a  very  material  part?  A.  Yes,  in  the 
case  of  lumber  I  suppose  the  average  rate  is  probably  $4  a 
thousand. 

Q.    $4  a  thousand?    A.    Possibly. 

Q.  That  constitutes  a  large  part  of  the  value  from  a  mill 
in  the  south  or  the  extreme  west?  A.  Not  a  very  large  part, 
but  perhaps  20  to  30  per  cent.,  depending  on  the  quality  of  the 
lumber,  and  on  some  it  is  not  5  per  cent. 

Q.  You  would  consider  that  a  very  material  part  of  the 
value,  20  to  30  per  cent.?  A.  Yes,  but  that  is  not  under  con- 
sideration in  these  cases. 

Examiner  Hillyer.  Do  not  these  large  commodities  like 
coal  and  lumber  in  which  you  change  the  principle  of  rate 
making  enter  the  cost  of  all  these  package  articles  on  which 
the  rates  are  increased?  A.  To  a  limited  extent  they  do, 
yes,  sir. 

Q.  Take  the  bills  of  a  manufacturer,  in  a  large  number 
of  factories,  the  coal  bill  and  lumber  bill  constitute  about  all 
the  expense  the  factory  has?  A.  I  do  not  see  what  bearing 
that  has  in  this  case,  since  lumber  and  coal  are  not  entering 
into  consideration. 


82 

Mr.  Lyon.  You  are  making  some  general  statements  as  to 
whether  the  rate  constituted  a  part  of  the  burden  upon  the 
public  and  said  it  did  not,  and  as  you  stated  before,  this  $150,- 
000  involved  in  tliis  case  was  only  a  beginning?  A.  That  is 
right. 

Q.  And  that  you  wanted  to  increase  your  profits  from  six 
per  cent,  to  twelve  per  cent.,  and  that  the  $150,000  involved 
in  the  investigation  here  was  infinitesimal  almost,  and  did  not 
concern  the  Santa  Fe  very  seriously  except  as  a  principle 
that  is  being  established?    A.     That  is  right. 

Q.  And  therefore  these  general  questions  which  are  being 
asked,  although  they  may  not  have  a  direct  application  to  the 
particular  taritTs  here  under  investigation,  are  certainly  to  be 
considered  in  the  general  advance  which  has  been  proposed 
by  the  Santa  Fe  and  other  roads.  That  was  the  reason  I 
asked  those  questions. 

Depots  and  Public  Vanity. 

Now,  you  stated  something  in  regard  to  stations  being  built 
for  the  public  merely  for  their  pleasure  and  satisfaction  and 
not  for  utility  purposes,  did  I  so  understand?    A.     You  did. 

Q.  Is  that  the  reason  why  the  stations  were  built  by  the 
Santa  Fe  in  the  deserts  of  Arizona  and  New  Mexico?  A. 
Mainly,  yes. 

Q.  Do  you  mean  to  say  that  the  population  along  that  line, 
taking  Ash  Fork,  for  instance ;  I  think  you  have  a  very  hand- 
some station  there;  I  was  there  last  year.  Do  you  say  the 
population  of  the  municipality  there  demanded  that  you  should 
construct  a  station  of  that  kind?  A.  No,  not  in  a  case  of 
that  kind,  because  there  was  nobody  there  before  but — 

Q.  Now  let  us  take  that  one.  You  say  there  was  nobody 
there.  I  know  that  because  I  was  there.  What  caused  them  to 
build  that  station?  A.  Well,  in  the  first  place  we  had  to 
build  a  fireproof  building  there  because  the  quality  of  coal  we 
burn  there  will  set  fire  to  anything  which  is  not  made  of  steel  or 
iron.  We  had  to  establish  a  restaurant  there  to  feed  people 
in  and  it  is  a  junction  where  passengers  debark  going  to 
Southern  Arizona,  and  we  had  to  have  some  place  for  people 
to  stay,  so  we  had  to  provide  for  the  housing  and  feeding 
of  quite  a  considerable  number  of  people,  and  we  built  a  build- 
ing that  I  should  not  call  a  palace  at  all,  but  it  is  a  very 
substantial  and  comfortable  building.  And,  in  accordance  with 
our  policy,  we  felt  that  we  had  to  do  it  and  we  had  better 


OF 


83 


do  it  well;  but  that  is  not  one  of  the  sort  of  things  that  I  had 
in  mind  when  I  spoke  about  building  our  stations. 

Q.  What  did  you  have  in  mind?  A.  I  had  in  mind  a  great 
many  of  their  stations  that  they  have  been  obliged  to  build, 
and  are  constantly  being  importuned  to  build  all  over  the 
country  to  gratify  the  vanity  of  a  particular  point. 

Q.  AVell,  now,  will  the  cost  per  passenger  of  handling  pas- 
sengers through  your  new  Kansas  City  station  which  I  have 
heard  of  first  here  to-day,  be  greater  or  less  than  at  Ash 
Fork  per  passenger?    A.    Than  at  Ash  Fork! 

Q.  Yes,  where  you  have  voluntarily  made  this  change! 
A.  We  don't  handle  any  passengers,  practically  speaking, 
there,  through  Ash  Fork,  through  the  station  at  Ash  Fork, 
not  to  amount  to  anything. 

Q.  The  people  get  off  there  and  eat!  A.  The  people  get 
off  there  and  eat  and  get  back  on  again,  yes.  That  is  not 
properly  a  depot  expense. 

Q  They  do  the  same  thing  in  Kansas  City,  do  they  not! 
A.    Yes. 

Q.  You  know  well  enough  what  I  mean,  Mr.  Ripley.  You 
have  stated  that  the  Kansas  City  station  and  these  other 
great  stations  that  are  being  erected  all  over  the  country  are 
not  built  because  the  railroads  think  they  should  be  built  for 
railroad  purposes,  but  the  implication  is  given  that  they  are 
built  for  the  vanity,  because  of  the  vanity  of  the  towns  in 
which  that  road  operates!    A.    Very  largely  true,  yes. 

Q.  How  much  of  the  Kansas  City  station  now  being  built 
by  eighteen  carriers,  I  understood  you  to  say,  did  I  not!  A. 
Sixteen  or  eighteen. 

Q.  Sixteen  or  eighteen  carriers  have  united  to  build  one 
place  there  where  passengers  may  disembark!     A.     Yes. 

Q.  How  much  of  that  station  is  built  for  vanity  and  how 
much  for  substantial  purposes!  A.  I  have  stated  a  little 
while  ago  that  of  the  three  million  dollars  that  is  going  to  be 
expended  in  the  building,  I  think  a  building  costing  one  hun- 
dred thousand  dollars  would  answer  all  the  purposes  so  far 
as  utility  is  concerned. 

Q.  You  mean  that  these  eighteen  railroads  in  Kansas 
City—    A.    Yes. 

Q.  Could  pay  one  hundred  thousand  dollars,  and  for  that 
amount  build  a  "station  that  would  answer  the  purpose  as  well 
as  the  one  costing  three  million  dollars!  A.  Not  as  well,  no, 
in  one  sense,  but  as  well  for  practical  purposes,  yes. 

Q.     As  well  for  practical  purposes!    A.    Yes. 


84 

Q.  By  that  you  include  all  that  may  come  to  a  railroad  or 
system  of  railroads  from  having  proper  facilities  for  the 
handling  of  traffic?  A.  Yes.  Perhaps  I  had  better  amend 
that  and  say  two  hundred  thousand  dollars;  but  an  insignifi- 
cant expense  comi^ared  with  what  is  being  spent  there. 

Q.  I  have  seen  one  erected  at  Washington,  D.  C.  They  of 
course  have  room  in  them  for  the  proper  and  expeditious 
handling  of  trafiic,  such  as  mail,  express  and  passengers  ?  A. 
Yes. 

Q.  Do  you  mean  to  say  you  have  considered  all  of  that 
in  your  hundred  thousand  dollar  proposition?    A.    Yes. 

Q.  And  all  of  those  conveniences  could  be  met  in  a  hun- 
dred thousand  dollar  station?  A.  I  modified  that  and  made  it 
two  hundred  thousand  dollars.  The  rest  of  it  is  frills  more 
or  less. 

Q.  Do  you  think  that  the  railroads  operating  into  the 
Pennsylvania  Union  Station  here  in  Chicago  are  operating 
into  that  station  in  the  most  economical  method  from  a  rail- 
road standpoint?    A.    No,  not  at  all. 

Q.  Do  you  think  they  ought  to  have  enlarged  facilities  or 
decreased  facilities?  A.  They  ought  to  have  increased  fa- 
cilities. 

Q.  You  think  that  they  ought  to  spend  money  on  that? 
A.  I  think  they  will  have  to  spend  money  on  increased  facil- 
ities. I  do  not  think,  however,  that  they  will  earn  any  in- 
terest on  what  they  spend,  in  addition  to  the  investment  they 
have  there  now. 

Q.  How  do  you  determine  a  matter  of  that  kind?  A. 
It  is  a  mere  matter  of  opinion;  I  don't  see  how  they  can. 
They  are  not  going:  to  handle  any  more  joeople,  and  there  is  no 
more  income  coming. 

Q.  You  think  there  won't  be  any  reduction  of  expense  in 
handling  it?  A.  No,  I  think  there  will  be  perhaps  an  in- 
crease in  expense.  I  have  no  idea  that  the  depot  in  Washing- 
ton is  conducted  as  economicallv  as  the  various  old  sheds  they 
had  there  before.  It  has  imposed  a  tremendous  expense 
merely  for  janitorship. 

Passenger  Burden  on  Freight. 

Q.  It  would  then  be  in  the  interest  of  the  shipping  public 
and  the  passenger  traffic,  not  to  have  these  improved  facil- 
ities? I  mean  so  far  as  economy  in  rates  is  concerned?  A. 
Yes,  if  you  are  going  to  gauge  economy  in  rates  by  expendi- 
tures, yes.  So  far  as  that  is  concerned  you  may  say  of  the 
traveling  public  that  the  freight  business  is  paying  a  por- 
tion of  their  expenses  now,  for  there  isn't  a  railroad  in  this 


85 

countiy,  at  least  no  railroad  west  of  the  Allegheny  Mountains, 
whose  passen,2:er  business  and  whose  mail  business,  judged 
by  any  proper  standard  of  the  ratio  of  expenses  to  income,  is 
compensatory.  There  isn't  any  railroad  that  is  not  losing 
money  on  the  entire  operation  of  its  passenger  trains  west  of 
the  Allegheny  Mountains.      The  freight  is  paying  for  it. 

Now  that  is  either  a  good  thing  or  it  is  not.  I  do  not 
know  whether  it  is  a  good  thing  or  not. 

Q.  You  do  not  mean  to  say  that  your  company  tries  to 
separate  and  make  every  movement  of  freight  or  passenger  a 
paying  proposition,  do  you  1  A.  No,  but  I  am  saying  that  the 
gross  passenger  business  and  the  gross  mail  business  put  to- 
gether do  not  pay  their  proper  share  of  our  expenses  and  in- 
terest and  maintenance. 

Q.  You  mean  by  the  proper  share,  when  you  figure  out 
what  you  estimate  to  be  the  passenger  expenses,  that  the 
passenger  receipts  do  not  equal  that?    A.    Yes. 

Q.     That  is  what  you  mean?    A.    That  is  it  exactly. 

Q.  You  do  not  mean  by  that  that  it  might  be  if  you  took 
the  passengers  and  hauled  them  for  nothing  that  the  gross 
income  of  your  company  might  be  increased!  A.  Certainly 
not. 

Q.  Of  course  that  is  an  extreme  case"?  A.  But  that  is  a 
fact,  that  the  freight  business  is  paying  a  portion  of  the  pas- 
senger expenses,  and  it  is  the  same  way  with  the  depots. 
Public  convenience  comes  first. 

Mr.  Norton.  Mr.  Examiner  and  Mr.  Lyon,  there  is  one 
question  I  want  to  ask  Mr.  Ripley  before  he  goes.  You  put  a 
question  to  Mr.  Ripley  as  if  he  wanted  to  increase  his  divi- 
dends to  the  shareholders  from  6  per  cent,  to  12  per  cent. 
That  was  not  the  intent. 

Examiner  Brown.  No,  Mr.  Lyon  did  not  put  that  ques- 
tion.    That  was  Mr.  Thorne. 

Mr.  Norton.  I  think  that  Mr.  Lyon  has  that  understanding 
of  it. 

Mr.  Lyon.  No,  he  said  he  wanted  to  collect  ten  million  dol- 
lars of  dividends  and  lay  aside  ten  million  dollars  for  im- 
provement. 

Mr.  Lyon.  I  understood  you  to  say  yesterday  that  these 
aesthetic  improvements,  such  as  stations  in  cities  and  elevated 
tracks  in  cities  and  that  class  of  improvements  did  not  mate- 
rially work  to  the  economy  of  transportation.    A.    Yes. 

Q.  Considerable  sums  have  been  spent  that  way  in  the 
last  five  years?    A.    Very  large  sums. 


86 

Inckeased  Operating  Expenses. 

Q.  Has  your  cost  of  operation  increased  in  the  last  five 
years  or  decreased?    A.    Increased  very  much. 

Q.    You  mean  per  unit  of  freight?    A.    Yes. 

Q.  The  operating  expense  of  the  Santa  Fe  Line  has  in- 
creased since  1905,  the  ratio?    A.    Yes. 

Q.  The  reports  made  to  the  Interstate  Commerce  Com- 
mission show  that  the  operating  expense  of  the  Atchison, 
Topeka  &  Santa  Fe  for  1905  was  65?  A.  That  is  the  ratio 
of  expenses  to  earnings? 

Q.    Yes.    A.     Yes. 

Q.  And  operating  expense  in  1909  was  59.  I  suppose 
you —  A.  I  do  not  think  that  59  is  correct  as  applied  to  the 
System. 

Q.  I  am  now  talking  about  the  lines  here  under  investiga- 
tion, the  Atchison,  Topeka  &  Santa  Fe  Eailway  Company,  not 
the  System,  not  including  the  Gulf,  Colorado  &  Santa  Fe.  A. 
The  fine  east? 

Q.    Yes.    A.    Yes. 

Q.  Then  it  is  a  fact  that  the  operating  expense  has  de- 
creased?   A.    No. 

Q.  What  is  the  fact?  A.  That  statement  taken  by  itself 
would  indicate  that  between  these  two  years  there  was  a  de- 
crease in  the  ratio,  but  that  does  not  mean  that  the  expenses 
had  decreased;  that  means  that  the  earnings  in  the  matter 
here  were  so  much  larger  that  in  spite  of  the  increased  ex- 
penses, the  ratio  is  something  less. 

Q.  Then  it  is  a  fact  that  the  operating  expense  of  a  rail- 
road is  influenced  by  two  factors,  one  of  these  factors  is  the 
economy  of  transportation  and  the  other  factor  is  an  increase 
in  the  rate.    A.    The  gross  revenue. 

Q.  Increase  in  the  gross  revenue  comes  from  an  increase 
in  the  rate  or  an  increase  in  the  amount  of  product  hauled? 
A.    Increase  in  the  amount  of  business,  yes,  sir. 

Q.  And  therefore  in  the  Atchison,  Topeka  &  Santa  Fe  it  is 
your  opinion  that  there  has  not  been  a  decrease  in  the  cost  of 
operating,  but  there  has  been  either  an  increase  in  the  rate  or 
an  increase  in  the  volume  of  traffic,  or  both?  A.  If  you 
take  these  particular  years,  there  were  no  substantial  increase 
in  the  rates,  but  there  was  a  large  increase  in  the  volume  of 
tonnage,  which  reduced  the  ratio  of  expenses,  although  individ- 
ual expense  was  larger  than  it  was  the  year  before. 

Q.     But  there  is  no  question  that  the  ratio  of  expense  was 


87 

less  in  1909  than  in  1904  or  1905?     A.     I  think  that  is  true, 
but  in  1910— 

Q.  I  have  not  the  figures  for  1910,  is  the  reason  I  did  not 
speak  of  them.    A.    I  have  them  here  if  you  want  them. 

Q.  Not  just  now.  We  hope  to  get  them  so  as  to  finish 
these  statements  at  tlie  next  hearing.    A.    They  are  here. 

Q.  I  would  be  glad  to  liave  them  if  you  will  let  me  have 
them.    We  want  them  eventually, 

(Papers  handed  Mr.  Lyon  by  Mr.  Eipley.) 

Q.  Now,  Mr.  Rii)ley,  you  say  that  in  your  opinion  there 
has  been  no  reduction  in  the  cost  of  operation,  as  has  been 
already  stated?    A.    Yes. 

Q.  Do  you  know  whether  your  line  gets  more  freight  moved 
for  every  dollars  invested  in  labor  now  than  it  did  five  years 
ago?  A.  I  have  not  figured  that  particular  item.  My  im- 
pression is  it  gets  less. 

Q.  Do  you  know  whether  it  gets  more  for  every  dollar 
invested  in  material  now?    A.    I  have  not  made  these  figures. 

Q.  You  have  not  made  these  figures?  A.  No.  We  have 
dealt  with  the  totals ;  we  have  not  analyzed  that  as  finely 
as  that. 

Q.  If  it  should  be  the  fact  that  your  company  gets  more 
for  every  dollar  invested  in  labor  today  than  it  did  five  years 
ago,  and  it  gets  more  for  every  dollar  invested  in  materials, 
would  your  opinion  be  the  same  that  these  improvements,  which 
have  been  made  in  the  way  of  improved  stations,  ele- 
vation of  tracks,  and  so  forth,  have  not  affected  the  operation? 
A.  I  should  say  that  these  things  had  very  little  to  do  with 
it. 

Q.  But  have  something  to  do  with  it?  A.  Very  little,  an 
infinitesimal  amount. 

Q.  How  would  you  determine  which  of  the  factors  are  in- 
finitesimal or  which  are  not  infinitesimal,  just  your  opinion? 
A.  Just  our  knowledge.  In  so  far  as  we  have  been  able  to 
overcome  the  constant  increase  in  cost  of  labor  and  that  sort 
of  thing,  we  have  been  able  to  do  it  by  handling  a  larger  busi- 
ness, handling  it  in  a  more  wholesale  way,  increasing  the  sta- 
bility of  our  tracks  and  enlarging  our  facilities  and  increas- 
ing the  size  of  our  trains  and  the  size  of  our  engines.  Such 
economies  we  have  been  able  to  practice  have  come  from  that. 
They  have  not  come  from  that  other  class. 

Q.  Then  the  statements  made  to  Mr.  Norton  yesterday 
about  the  doutfulness  of  the  advantage  of  increasing  the  size 
of  vour  locomotives  and  cars  is  to  be  qualified  now?    A.    I  did 


88 

not  say  there  was  any  doiibt  about  increasing  the  size  of  our  lo- 
comotives. There  was,  I  said,  serious  doubt  about  increasing 
the  size  of  our  cars  beyond  a  certain  amount,  and  I  did  not 
say  that  we  had  derived  no  economies  from  these  things.  I 
said  there  were  pages  on  the  other  side  which  in  a  measure 
balanced  those  things.    I  did  not  say  they  fully  balanced. 

Q.  Then,  as  a  matter  of  fact,  these  things  have  been  the 
causes  of  the  reductions  in  cost  of  operation?  A.  Yes.  If  we 
had  not  done  those  things  we  should  not  have  been  on  earth  to- 
day. 

Q.  Then  no  mistake  has  been  made  in  enlarging  your  lo- 
comotives and  cars?    A.    Oh,  no. 

Q.  Is  it  a  fact  that  the  carload  minimums  have  been  changed 
in  recent  years,  increase?  A.  "Well,  they  have  been  slightly 
increased  in  the  matter  of  interstate  rates,  governed  by  the 
Commission;  I  think  there  have  perhaps  been  more  increases 
than  decreases.  In  fact  I  do  not  know  that  the  attitude  of  the 
Interstate  Commerce  Commission  has  been  objectionable  in 
any  way  in  that  respect.  The  States,  however,  have  refused 
as  a  rule  to  allow  us  the  benefit  that  we  ought  to  have  de- 
rived from  the  larger  cars. 

Q.  Do  you  know  what  proportion  of  your  business  is  inter- 
state and  what  state?  A.  I  cannot  answer  that  question  at 
the  moment. 

Q.  Well,  something  in  excess  of  75  per  cent,  is  interstate, 
is  it  not?  A.  Taking  the  business  of  the  System  I  should 
doubt  whether  75  per  cent,  of  it  was. 

Q.  But  whatever  that  percentage  is,  the  tendency  has  been 
to  increase  the  carload  rate.  A.  No,  not  to  increase  the  car- 
load rate. 

Q.  The  carload  minimum,  I  should  say?  A.  Yes,  to  in- 
crease the  minimum. 

Q.  And  that  of  course  makes  more  freight  hauled  at  the 
less  than  carload  rates,  paying  the  less  than  carload  rates? 
A.     No,  I  do  not  think  so. 

Q.    You  think  not?     A.     No. 

Physical  Value  of  Santa  Fe. 

Q.  On  another  line;  you  stated  yesterday  I  think  that  the 
five  hundred  and  odd  million  dollars  of  capital  of  your  com- 
j)any  did  not  represent  its  reproduction  value?    A.    Yes. 

Q.  Just  what  did  you  mean  by  that  statement?  A.  I  mean 
it  could  not  be  reproduced  for  the  amount  it  is  capitalized  at. 


89 

Q.  Do  you  think  the  Santa  Fe  Road  could  be  reproduced 
under  any  conditions?  A.  Well,  no,  not  as  an  entity  and  as 
a  going  concern  as  it  is  now,  no ;  but  I  am  talking  about  the 
bare  cost  of  replacing  what  it  has. 

Q.  You  mean  by  that,  that  if  a  new  concern  was  incorpo- 
rated and  wanted  to  roach  the  same  points  that  you  do,  that 
to  buy  the  proper  rights  of  way  into  great  cities  like  Chicago 
and  Kansas  City  and  San  Francisco  and  Los  Angeles  and 
various  states  along  vour  road,  they  could  not  do  it  for  $570,- 
000,000?    A.    Yes. 

Q.  You  do  not  mean  that  that  at  all  represents  the  physical 
value  of  the  Santa  Fe  Road?    A.    Well,  yes,  I  think  it  does. 

Q.  By  physical  value  you  include  the  present  value  of  the 
property —  A.  I  simply  value  the  property  at  its  physical 
value,  the  value  of  the  rails  and  ties  and  buildings  and  its 
equipment,  its  stock,  its  property  in  general,  based  on  the 
same  class  of  property  adjoining  it. 

Examiner  Brown.  That  is  in  other  words,  the  question  you 
now  have  you  mind  on  is  not  what  the  Santa  Fe  System  cost? 

Mr.  Ripley.     No. 

Mr.  Lyon.  But  what  it  is  worth  today,  is  that  it?  A.  Yes, 
I  think— 

Q.  I  did  not  ask  you  a  thing  about  what  it  cost.  A.  I  know 
that. 

Q.  I  confined  it  strictly  to  your  own  words,  the  cost  of  re- 
production?   A.    Yes. 

Q.  And  as  you  said,  you  included  in  that,  for  instance,  if 
there  is  a  terminal  in  Chicago,  what  the  value  of  that  land  is, 
based  on  the  surrounding  lands  of  the  Santa  Fe  today?  A. 
Yes,  quite  right. 

Q.  Have  you  any  idea  what  proportion  of  that  $537,000,- 
000 — what  proportion  of  that  would  be  represented  by  land 
values  ?  A.  I  cannot  answer  that  question  at  the  moment,  and 
I  would  hesitate  to  give  an  estimate. 

Mr.  NoETON.    What  was  that  question? 

(Question  read.) 

A.  I  think  possibly  if  I  was  going  to  guess,  and  I  do  not 
dignify  it  with  anything  having  a  stronger  name  than  a  guess, 
I  should  say  perhaps  $45,000,000,  forty-five  or  fifty  million 
dollars. 

Q.  Then  about  $530,000,000  you  figure  as  representing  the 
reproduction  cost,  if  that  is  a  proper  term?    A.    Yes. 

Q.     Of  your  system?    A.    Of  property  outside  of  the  land. 


90 

Q.    Property  outside  of  the  land?    A.    Yes. 

Q.  Have  you  any  terminals  in  Chicago?  A.  Yes,  we  have 
quite  large  ones. 

Q.  I  did  not  know  whether  the  Santa  Fe  owned  them  or 
whether  they  leased  them.  A.  The  Santa  Fe  owns  very  large 
terminals  in  Chicago. 

Q.  What  would  you  value  those  terminals  at  in  Chicago, 
have  you  ever  value  them  here?  A.  Why,  we  have  a  general 
notion  as  to  their  value.  I  think  they  are  worth  probably  ten 
million  or  twelve  million  dollars. 

Q.  That  includes  the  approach  into  Chicago,  freight  yards 
and  the  passenger  stations?  A.  No,  no  freight  yards;  or  at 
least  verv  limited  freight  yards. 

Q.  What  do  you  do  with  the  freight  yards?  A.  The 
freight  yards  are  outside  very  largely. 

More  About  Secueities. 

Q.  Now,  a  question  in  regard  to  the  stock,  one  or  two  ques- 
tions. These  convertible  bonds  were  issued  at  about  104,  I 
understand.  A.  Some  of  them  were — No,  I  don't  think  we 
got  104.  Possibly  we  did  for  the  5's.  Let  me  see,  I  have  got 
it  here,  I  think.  The  issue  of  June  1,  1909,  was  sold  at  104, 
$35,000,000. 

Q.  They  were  converted  into  stock,  and  what  was  the  stock 
selling  for  at  the  time  of  conversion?  A.  Oh,  various  prices. 
I  think  between  110  and  120. 

Q.  Eighteen  millions,  I  believe,  was  converted  in  1908, 
wasn't  it?    A.    I  cannot  answer  that  question. 

Q.  What  was  the  stock  selling  for  then,  do  you  know,  ^Ir. 
Eipley?  A.  I  don't  know.  I  don't  keep  track  of  the  stock 
market. 

Q.  In  1908  and  1909  there  was  eighteen  million  converted, 
and  that  sold  for  between  110  and  120.  A.  I  think  that  was 
the  general  range  of  prices,  yes. 

Q.  In  other  words,  if  the  company  had  sold  the  stock  they 
would  have  realized  110  to  120?  A.  Yes.  Of  course  we 
couldn't  do  it. 

Q.    You  could  not  sell  the  stock?    A.    We  could  not. 

Q.  Was  it  sold  at  that?  A.  It  was  sold  in  the  market  at 
thai. 

(}.  P>ut  you  could  not  sell  il  in  the  market?  A.  Why,  do 
you  suppose  with  the  market  at  110  or  120,  or  anv  other  fig- 


91 

ure,  tliat  yon  could  sol]  an  issue  of  $35,000,000  of  stock  witL- 
out  knocking  the  price  down  to  i)ar  or  below :' 

Q.  I  don't  know.  A.  Well,  certainly  not.  The  bonds  were 
sold  because  they  were  a  bond.  They  were  bought,  I  should 
say,  because  they  were  a  bond  and  had  tlie  elements  of  secur- 
ity that  a  bond  is  supposed  to  have,  plus  a  gambling  chance  to 
exchange  for  stock  and  sell  the  stock.  That  is  why  conver- 
tible bonds — why  it  was  possible  to  sell  them  at  all,  and  why, 
when  the  time  came  that  the  stock  did  acquire  value,  they 
were  exchanged. 

Q.  You  said  the  company  could  not  do  that?  A,  If  the 
company  had  offered  $35,000,000  of  its  stock  at  104  or  any 
other  price  it  is  altogether  probable  that  the  effect  would  have 
been  to  have  depressed  the  stock  below  par. 

Q.  And  yet  it  could  issue  the  bonds  at  104  and  it  would  not 
have  that  effect?  A.  No.  That  is  a  very  different  proposi- 
tion. 

Q.    Sir?    A.    Those  are  two  very  different  propositions. 
Q.    Maybe  they  are;  I  am  trying  to  get  at  what  they  are. 
A.    I  hope  I  have  made  myself  clear  on  it. 

Q.  Not  clear  to  me ;  it  may  be  that  you  have  made  this 
clear,  but  I  may  be  difficult  of  comprehension.  This  was  a 
second  mortgage  bond  and  of  course  secured  on  the  property, 
and  you  got  104  for  that?  A.  I  should  not  say  it  is  a  second 
mortgage  bond.  It  is  a  lien  on  a  large  amount  of  property 
which  has  no  mortgage  on  it.  It  is  not  a  specific  lien  on  any 
individual  property,  but  it  is  a  general  lien  on  the  property 
of  the  company. 

Q.  Wasn't  there  a  first  lien  on  the  property  of  the  com- 
pany? A.  Not  all  of  it.  The  first  mortgage  bond  does  not 
cover  all  the  property. 

Q.  I  did  not  know  whether  the  first  mortgage  bonds  cov- 
ered all  the  property  or  not.  Then  this  was  a  first  lien  on  a 
portion  of  the  propertv  and  a  second  lien  on  the  balance?  A. 
Yes. 

Q.  And  the  stock  would  re]U'esent  a  lien  on  the  ownership 
of  all  the  property  ahove  tlie  first  mortgage?  A.  Oh,  not 
above  all  the  first  mortgage,  because  there  were  several  issues 
on  various  classes  and  various  portions  of  the  property.  There 
was  a  large  amount  nt  the  time  bonds  were  issued,  and  at  the 
time  these  convertible  bonds  were  issued  afterwards  there 
was  a  large  amount  of  unmortgaged  property  to  which  these 
bonds  attached  as  a  first  lien.     Perhaps  1  ought  to  say  that 


92 

they  were  sold  very  largely  on  the  faith  of  the  securities  in 
the  treasury  consisting  of  first  mortgage  bonds  and  stocks  of 
auxiliary  roads. 

Q.  They  were  put  up  as  security  for  those  bonds?  A. 
They  were  not  a  specific  lien,  but  the  bonds  were  issued  really 
on  the  faith  of  those  securities. 

Q.  And  there  was  of  course  no  other  lien  against  those  se- 
curities! A.  There  was  no  other  lien  against  those  securi- 
ties. 

Q.  And  therefore  they  were  a  first  lien  on  that  class  of 
security?    A.    Yes. 

Q.  And  if  these  bonds  had  not  been  issued,  of  course  the 
holders  of  the  stock  would  have  owned  those  securities?  A. 
Yes. 

Q.  Or  did  own  them?  A.  Yes.  "We  have  never  seen  the 
time,  much  as  we  would  like  to  do  it — we  have  never  seen  the 
time  when  we  would  have  dared  to  offer  stock  to  our  stock- 
holders even  at  par,  because  the  issuance  of  such  a  large 
amount  of  stock  would  in  all  probability  have  had  a  very  de- 
pressing effect  on  the  market  and  on  our  credit. 

Q.  And  issuing  the  bonds  does  not  have  that  effect?  A. 
No. 

Q.  Although  formerly  all  the  profits  would  have  been  di- 
vided among  the  stockholders?    A.    Yes. 

Q.  You  can  take  out  $35,000,000  in  bonds  and  pay  the  fixed 
charge  to  the  bond  and  that  does  not  affect  the  stock?    A.  No. 

Q.  Is  that  true  in  finances  generally?  A.  I  think  it  is 
tnie,  especially  when  you  consider  that  you  pay  4  per  cent, 
on  the  bonds,  and  you  pay  5  or  6  per  cent,  on  the  stock,  pos- 
sibly 6  per  cent. 

Q.  Then  if  you  have  got  a  business  worth  $2,000,000,000  and 
vou  have  $100,000,000  of  first  mortgage  bonds  on  it,  and  $100,- 
000,000  in  stock,  you  can  put  $50,000,000  worth  of  second 
mortgage  bonds  on  it  and  not  affect  the  value  of  the  stock? 
A.  That  is  stating  it  rather  broadly  as  a  general  proposi- 
tion; but  I  observe  that  in  almost  all  cases  of  industrial  pro- 
motion or  promotion  of  any  kind  of  enterprise,  the  tendency 
is  to,  as  far  as  possible,  capitalize  by  means  of  low  rate 
bonds,  rather  than  by  issues  of  stock. 

Q.  I  acknowledge  my  ignorance  as  to  railroad  finances,  but 
I  know  the  j^rinciple  is  true  in  ordinary  affairs.  A.  I  am 
talking  about  financing  in  general.  I  think  it  is  particularly 
true  of  industrial  corporations  that  they  get  their  capitaliza- 


93 

tion  into  bonds  about  as  fast  as  they  can  in  order  to  keep  the 
stock  among  themselves. 

Q.  But  as  a  result  of  this,  anyway,  the  parties  who  got 
these  bonds  netted  some  six  to  ten  million  dollars  or  six  to 
ten  per  cent,  over  what  the  railroads  got  for  them  by  exchang- 
ing them  for  stock?  A.  I  don't  know  to  what  extent  they 
did,  because  I  don't  know  how  much  they  sold.  The  oppor- 
tunity was  there.  Perhaps — I  have  no  doubt  that  a  large 
portion  of  them  have  got  the  stock  vet.  It  is  selling  at  97^ 
and  98. 

Q.  But  the  opportunity  was  there?  A.  They  did  have  that 
opportunity  at  one  time. 

Q.  Were  those  convertible  bonds  taken  by  the  stockholders 
of  the  Santa  Fe?  A.  That  particular  issue  was  nearly  all 
taken  up  by — 

Q.  By  those  who  were  interested  in  the  property?  A.  By 
the  stockholders. 

Q.  And  they  had  the  opportunity  to  transfer  it  afterwards 
at  a  profit?    A.    Yes. 

Earnings  in  1910. 

Q.  Now,  Mr.  Eipley,  the  report  for  1910,  and  of  course  we 
have  simply  these  monthly  reports,  the  annual  report  of  the 
road  not  having  been  filed  as  yet.  A.  The  figures  are  before 
you  in  that  system  if  you  would  like  to  take  it  up. 

Q.  No,  those  are  for  the  System,  I  want  the  figures  for 
1910,  and  I  have  those  figures  here  taken  from  our  monthlj' 
reports,  which  show  that  the  Santa  Fe  earned  last  year  $10,- 
200,000  more  than  it  did  the  year  before?    A.    That  is  right. 

Q.  And  in  order  to  earn  that  $10,200,000  it  necessitated 
an  expenditure  of  $10,563,000?  A.  It  necessitated  the  ex- 
penditure of  over  $12,000,000. 

Q.  I  am  taking  the  reports  as  made  to  the  Interstate  Com- 
merce Commission  by  the  Atchison,  Topeka  &  Santa  Fe  lines. 
A.  I  don't  know  what  report  that  is.  I  am  dealing  with  the 
System's  figures. 

Q.  I  am  not  dealing  with  the  System.  A.  Well,  I  know 
about  the  System.  I  am  not  in  the  habit  of  dealing  with  it 
piecemeal,  very  much.    The  System  report  is  before  you. 

Q.  The  trouble  is  I  would  be  willing  to  follow  the  System, 
but  as  the  Interstate  Commerce  Commission  has  no  report 
made  to  it  as  a  System,  we  are  obliged  to  follow  these  things 
up  on  the  lines  in  which  the  reports  are  got  up.  The  line  here 
involved  is  not  the  Gulf,  Colorado  &  Santa  Fe;  it  is  the  line 
starting  from  Chicago  and  known  as  the  Atchison,  Topeka  & 
Santa  Fe,  and  the  figures  I  have  no  doubt  are  accurate,  be- 


94 

cause  they  are  taken  from  reports  furnished  by  your  office. 
A.    I  have  no  doubt  they  are. 

Wage  Increase. 

Q.  They  show  a  decrease  in  net  operating  revenue  of 
$362,000.  A.  The  actual  decrease  for  the  System  was  over 
$2,000,000. 

Q.  I  know  nothing  about  that  now;  how  do  you  account 
for  that,  if  there  is  any  accounting  for  it?  A.  It  is  accounted 
for  by  increase  in  expenses,  of  course.  I  can  account — I  think 
I  can  give  you  some  light  on  that.  Where  is  that  wage  scale 
statement,  Mr.  Norton,  that  you  liave  got  there!  This  does 
not  show  from  year  to  year,  1908  and  1909  the  wages'? 

Mr.  NoETON.    I  do  not  believe  we  have  got  that. 

Mr.  Ripley.  I  can  give  you  later  just  the  items  where  that 
comes  in,  but  it  was  about,  I  should  say.  $2,000,000  of  it  in 
straight  wages. 

Mr.  Lyon.    In  wages?    A.    Yes. 

Q.  For  the  vear  ending  June  30,  1910,  that  the  wages  were 
$2,000,000  in  excess—    A.    About  that. 

Q.     From  June  30,  1909  f     A.     Yes. 

Q.  I  understand  by  that  statement  that  you  mean  that  you 
paid  for  labor  for  the  3'ear  ending  June  30,  1910,  two  million 
dollars  in  excess  of  what  you  paid  for  the  year  ending  June 
30,  1909?  A.  That  is  my  recollection.  I  don't  wish  it  under- 
stood as  being  exact  as  to  these  figures. 

Q.  I  understand,  round  figures.  We  have  substantially  the 
same  figures.    And  during  that  year  ending  June  30,  1910 — 

Mr.  Atwood.    Is  that  system  figiires? 

Examiner  Brown.     Yes,  he  is  talking  about  the  system. 

Mr.  Ripley.  Yes,  I  am  talking  about  the  system.  I  cannot 
pick  the  thing  to  pieces  as  you  have  it  there. 

Mr.  Lyon.  It  is  all  right,  if  you  can  not  pick  it  to  pieces 
the  way  the  reports  go  to  the  commission  I  am  unfortunate. 
That  is  all  the  figures  I  had  to  work  on.  But  two  million  dol- 
lars is  your  system's  increase  in  wages?  A.  Approximately, 
that  is  my  recollection  of  it. 

Q.  And,  therefore,  the  increase  on  the  Atchison,  Topeka  »S: 
Santa  Fe  is  something  less  than  two  million  dollars,  you  do 
not  know  how  much,  but  it  is  obliged  to  be  less,  that  is  true, 
isn't  it?    A.    No,  I  think  it  would  be— 

Q.  Would  it  be  more?  A.  If  you  are  excluding  the  Gulf, 
Colorado  &  Santa  Fe,  as  I  understand  vou  are? 


95 

Q.  Yes.  A.  I  think  that  their  wage  scale  was  not  mate- 
rially greater  in  1910  than  it  was  in  1909,  because  they  had  a 
very  light  business  there  and  I  think  they  employed  fewer 
men.  They  paid  more  wages  per  man  but  they  employed 
fewer  men. 

Q.  We  will  put  it  this  way,  then:  that  all  of  your  in- 
creased wages,  the  increase  of  labor,  accrued  on  the  Atchison, 
Topeka  &  ISanta  Fe  main  line  last  year.  Do  you  admit  that! 
A.    Yes,  I  should  say  that  was  probable. 

Q.     Have  you  anything  more  to  add!     A.     No. 

Q.  That  is  the  utmost  you  could  give,  the  most  you  could 
go  on  the  matter  we  are  discussing  lieref     A.     Yes. 

Q.  With  that  two  million  dollars  extra  labor,  you  earned 
ten  million  dollars  gross  revenue,  didn't  you!    A.    Yes. 

Q.  That  is  twenty  per  cent,  of  ten  million,  as  a  matter  of 
mathematics!     A.     Yes. 

Q.  If  the  reports  of  the  Atchison,  Topeka  &  Santa  Fe 
for  a  series  of  years  show  that  your  compensation  to  labor 
has  been  in  the  neighborhod  of  thirty-five  per  cent,  of  your 
gross  receipts,  gross  revenue,  then  the  payment  of  twenty 
per  cent,  to  earn  ten  million  dollars  in  1909,  would  not  appear 
to  be  unreasonable,  would  it!  A.  A  very  large  proportion  of 
the  expenditures  of  a  railroad  remain  fixed,  notwithstand- 
ing that  there  might  be  a  large  decrease  or  a  large  increase 
in  the  earnings.  Many  of  our  expenses  are  not  affected  by 
our  increase,  and  there  is  hardly  any  year  that  we  could  not 
increase  our  earnings  $10,000,000  without  increasing  our  labor 
more  than  a  small  fraction  of  that.  We  do  not  employ  as 
a  rule,  when  we  have  a  large  increase  in  our  earnings,  any  ad- 
ditional help  as  to  a  large  portion  of  our  business;  it  takes 
more  enginemen  and  more  trainmen  and  more  men  in  the  op- 
erating department  and  some  additional  help  at  stations,  but 
not  very  much,  and  it  is  notorious  that  we  can  increase  our 
earnings  ordinarily  enormously  without  increasing  our  ratio 
of  expense  proportionately.  That  ought  to  be  the  case,  but 
in  the  last  two  or  three  years  everything  has  been  against  us. 

Q.  Then  I  understand  your  position  is  that  as  you  in- 
crease your  gross  operating  revenue  you  do  not  expect  to  in- 
crease your  compensation  to  labor!  A.  We  have  increased 
our  compensation  to  labor  per  man,  per  unit;  but  naturally 
there  is  a  large  number  of  our  employes  whose  status  is  not 
affected  by  a  considerable  increase  in  the  business.  For  in- 
stance I  do  not  get  any  more  salary  when  we  earn  $10,000,000 
more,  and  neither  do  any  of  our  general  officers,  and  neither 


96 

do  the  majority  of  what  you  might  call  our  stationary  em- 
ployes, although  that  increase  in  business  affects  the  opera- 
tion of  the  road  and  the  running  of  trains  and  that  sort  of 
thing. 

Q.  Then  I  judge  from  your  testimony  that  you  did  not 
take  much  stock  in  this  fallacious  doctrine  that  the  carriers 
were  entitled  to  more  revenue  because  of  any  increase  in 
the  labor  account?  A.  I  certainly  did.  You  have  taken  one 
year  when  the  actual  increase  in  earnings  was  $10,000,000. 
Now  that  is  partly  accounted  for  by  the  fact  that  it  embraces 
a  good  many  more  miles  of  road;  but  the  fact  is  that  with 
that  increase  of  $10,000,000  gross  earnings  there  was  an  in- 
crease of  $12,000,000  in  expenses.  The  labor  portion  of  that — 
you  have  pressed  me  for  an  estimate  or  guess  of  what  that  in- 
crease was,  and  I  guessed  $2,000,000. 

Q.    You  think  that  is  approximately  correct?      A.    Yes. 

Q.  You  are  president  of  this  great  system,  and  you  do  not 
mean  when  you  state  a  guess  here  that  it  is  an  arbitrary 
g-uess,  but  that  is  about  the  amount  that  the  wages  have  been 
increased?  A.  I  have  never  studied  from  that  particular 
angle  and  especially  from  a  view  of  a  piece  of  the  property. 
But  we  know  that  the  wages  paid  each  individual  man  have 
largely  increased.  How  much  the  actual  number  of  men 
employed  has  been  increased  by  this  increase  of  business  of 
$10,000,000  is  a  very  hard  thing  to  estimate,  and  I  cannot 
say  at  the  moment  what  it  is. 

Q.  The  difference  is  that  we  do  know,  by  the  reports  fur- 
nished to  the  Commission,  just  what  the  effect  on  the  unit 
of  movement  is,  and  we  find  that  to  earn  $10,000,000  last 
year  additional  vou  invested,  from  your  statement,  some- 
thing less  than  $2,000,000  in  labor,  and  that  is  about  20  per 
cent.     A.  Well,  put  it  that  way. 

Q.  While  usually  it  takes  35  per  cent,  to  secure  you  your 
unit.  A.  Well,  we  can  probably  increase  our  earnings  $10,«- 
000,000  next  year,  or  at  least  we  could,  without  expending 
more  than  $2,000,000  additional  for  labor. 

Q.  That  is  the  fact?  A.  Well,  that  is  a  fair  statement,  I 
think. 

Q.  Then  if  you  want  to  increase  any  rates  to  compensate 
labor,  it  takes  a  very  small  increase  in  the  gross  revenue, 
because  only  20  per  cent,  is  necessary.  Of  all  the  increase  you 
received,  it  only  takes  one  dollar  out  of  the  five  to  compensate 
the  labor?  A.  It  depends  entirely  upon  what  the  character 
of  our  increase  is,  whether  it  comes  from  additional  tonnage 


97 

at  very  low  rates  or  the  same  tonnage  at  high  rates,  and  it 
depends  upon  the  amount  which  we  pay  for  hibor  directly, 
also,  and  what  we  pay  in  supplies,  and  all  that  sort  of  thing. 

Q.  Of  course  it  depends  upon  all  those  contingencies,  I  un- 
derstand. A.  The  20  per  cent,  we  are  estimating  as  the  ad- 
ditional amount  paid  to  hibor  is  what  goes  to  labor  direct; 
it  does  not  bear  on  the  question  of  what  goes  indirectly. 

Q.  Do  you  consider  it  proper  railroading  when  you  show 
an  increase  in  your  operating  revenue  of  $10,000,000,  to  show 
that  it  takes  more  than  $10,000,000  to  earn  it?  A.  Well,  I 
do  not  think  it  is  a  happy  condition,  if  that  is  what  you 
mean. 

Q.    Yes,  it  is  an  unfortunate  condition.    A.    Yes. 

Q.  And  something  unusual?  A.  Well,  yes,  I  am  afraid  it 
is  rather  unusual. 

Q.  And  you  can  attribute  only  $2,000,000  of  that  to  the 
labor  proposition?  A.  I  should  think  so^  about  that;  that  is 
the  direct  labor. 

Q.  That  leaves  $8,500,000  to  materials — the  things  that 
make  up  the  operating  expense  of  a  railroad  are  two,  are 
they  not,  material  and  labor?  A.  Yes,  and  the  labor  that 
goes  into  material. 

Q.  Well,  your  reports  show  your  $2,000,000  cover  all  the 
labor  that  the  Santa  Fe  has  to  concern  itself  with.  The 
labor  that  goes  into  the  cross  tie  that  is  cut  in  the  woods  by 
the  farmer  is  taken  care  of  in  the  price  of  the  tie,  and  that  is 
material.    A.    Yes. 

Q.  Therefore,  there  is  $8,500,000  of  material  that  you  had 
to  buy  in  order  to  get  this  $10,000,000  in  revenue?  A.  That 
does  not  follow. 

Q.  W^ell,  what  is  in  error?  A.  Well,  there  are  a  great 
many  other  things  that  are  not  in  there  at  all.  For  instance, 
not  quite  a  year  ago  the  longest  tunnels  on  our  railroad 
caved  in,  the  one  that  we  had  been  trying  to  carry  for  quite 
a  while ;  it  had  been  timbered,  but  there  was  no  timber  heavy 
enough  to  hold  up  the  mass  of  earth  that  was  on  top  of  it. 
We  had  to  go  to  work  and  re-line  that  tunnel  with  concrete 
from  end  to  end,  and  it  cost  about  $700,000.  That  labor  was 
contracted ;  it  does  not  appear  in  my  labor  sheet  at  all. 

Q.  It  does  not  appear  where?  A.  It  does  not  appear  on, 
our  labor  sheet  at  all  . 

Q.  It  appears  on  your  material  account,  though.  A.  No, 
it  does  not  appear  on   our  material  account. 


98 

Q.  Where  does  it  appear?  A.  It  was  a  contract  job;  it 
was  let  to  a  contractor. 

Q.  Does  it  not  appear  in  your  operating  expenses?  A. 
Yes,  under  the  head  of  roadway  and  track. 

Q.  Then  durin.s:  that  year  before  there  was  a  tunnel  which 
was  in  constant  use  for  a  series  of  years,  and  there  was  a  ma- 
terial break  in  it,  costing  you  $700,000  to  re-line  that  with  con- 
crete, and  that  is  all  charged  up  to  operating  expense  of  1910? 
A.  It  is.     Where  would  you  put  it? 

Q.  I  do  not  know,  sir.  I  am  trying  to —  A.  We  are  liable 
to  have  another  one  next  year. 

Q.  But  you  evidently  have  not  had  such  a  condition  ap- 
pearing in  the  years  past,  judging  by  j'our  operating  ratio, 
otherwise  you  would  not  have"  had  any  profits.  I  mean  it 
would  have  cost  you  more  to  operate  your  road  than  the  re- 
ceipts? A.  There  is  nothing  more  fallacious  than  the  operat- 
ing ratio  idea.  That  depends  on  the  volume  of  business  done 
very  largely,  and  on  the  elements,  and  the  luck  that  you  may 
have  going  through  with  them. 

Q.  Yes,  I  know,  I  have  never  found  any  figures  which  were 
not  fallacious  under  certain  conditions,  and  I  presume  these 
are  the  same  kind ;  but  they  are  furnished  us  by  the  rail- 
roads.   A.    Well,  you  asked  for  them. 

Q.  And  the  Commission  does  not  keep  the  books,  and  we 
have  to  rely  on  them.  A.  Excuse  me,  but  I  think  the  Com- 
mission does  keep  the  books. 

Q.  When  you  tore  out  this  tunnel  and  re-lined  it,  did  the 
Interstate  Commerce  Commission  tell  you  how  much  to  charge 
up  to  capital  and  how  much  to  operating  on  that  particular 
job?  A.  I  think  the  Interstate  Commerce  Commission  in  that 
particular  kind  of  work  is  permissive;  it  says  we  may  if  we 
please  pro  rate  an  extraordinary  expenditure  of  that  kind 
through  a  series  of  years. 

Q.  And  you  did  not  do  it  in  this  case?  A.  No,  we  did 
not,  and  we  do  not  do  it  in  any  case,  because  we  do  not 
think  it  is  safe  practice,  and  the  Commission  does  not  order 
us  to  do  it,  it  permits  us  to  do  it  if  we  want  to.  That  is,  if 
we  are  so  poor  that  we  cannot  possibly  stand  it  in  any  one 
year,  they  permit  us  to  pro  rate  it  over  a  number  of  years. 

Q.  Then  if  a  condition  occurs  which  did  occur  this  year, 
then  it  costs  you  more  to  do  your  increased  business  than 
the  business  was  worth  to  you,  it  may  come  about  by  your 
failure — or  in  your  judgment  it  was  not  necessary  to  pro  rate 
these  extraordinary  expenses.     That  might    be    the    cause. 


99 

might  it  not?  A.  I  should  rather  take  those  things  out  of  in- 
come as  they  occur,  if  we  are  able  to  do  it ;  it  is  better 
financing,  it  is  a  better  practice. 

Q.  I  am  not  questioning  j'our  financing  at  all,  but  to  be 
perfectly  frank  with  you,  we  have  all  the  railroads  of  the 
country  and  all  of  them  show  a  net  operating  revenue  in- 
crease but  a  very  few,  and  among  these  is  the  Santa  Fe.  A. 
Yes. 

Inckeased  Cost  Conducting  Transportation. 

Q.  We  find  that  in  the  year  1910,  very  unusual  with  the 
Santa  Fe,  one  of  the  best  operated  systems  in  the  country, 
I  imagine,  that  in  this  year  of  grace,  1910,  it  cost  them  more 
to  get  their  business  than  they  got  out  of  it,  and  I  am  trying 
to  find  out  the  reason,  and  I  think  you  are  giving  the  explana- 
tion of  it,  that  5^ou  have  charged  to  that  year  extraordinary 
expenses.  A.  (After  examining  paper.)  There  was  an  in- 
crease in  the  cost  of  conducting  transportation  alone,  that  is 
the  mere  running  of  trains  between  1909  and  1910  of  $5,000,- 
000.  That  accounts  for  $5,000,000  of  the  $12,000,000  increase. 
That  is  the  mere  running  of  trains.  Conducting  transporta- 
tion. 

Q.  Then  your  statement  that  $2,000,000  was  for  labor  is 
an  error,  is  it!  A.  You  remember  that  I  did  not  make  that 
statement  as  definite,  but  as  being  in  my  judgment.  I  would 
have  to  examine  those  figTires  a  little  to  verify  that.  I  do  not 
know  exactly  what  the  classification  of  labor  is  as  rendered 
in  the  Interstate  Commerce  Commission,  and  whether  it  em- 
braces station  agents  and  all  that  sort  of  thing. 

Q.  It  does  embrace  them.  Now  this  $5,000,000  you  said 
was  increase  for  conducting  transportation?     A.    Yes. 

Q.  Do  you  know  how  much  of  the  cost  of  conducting  trans- 
portation is  labor  and  how  much  material?  A.  I  can  give 
you  the  items,  if  you  please. 

Q.  I  do  not  care  for  the  enginemen  separate  from  the  fire- 
men, but  the  labor  separated  from  material.  A.  The  super- 
intendence was  $885,000  against  $709,000  last  year.  De§- 
patchers  was  $605,000  against  $508,000;  the  station  employes 
were  $4,179,000  against"  $3,682,000.  There  are  some  minor 
things  here  that  all  show  increases.  Yardmasters  and  clerks 
$320,000  against  $267,000.  Yard  conductors  and  brakemen 
$1,168,000  against  $952,000.    Yard  enginemen  $666,000  against 


100 

$555,000.  Yard  euginehouse  expense  $206,000  against  $179,- 
000.  Fuel  for  yard  loconwtives  $780,000  against  $598,000. 
Water  for  yard  engines  $73,000  against  $45,000.  Koad  en- 
gines $3,979,000  against  $3,381,000,^  an  increase  of  $600,000. 
Koad  enginehouso  expenses  $1,299,000  against  $1,044,000. 
Fuel  for  road  locomotives  $7,325,000  against  $5,775,000. 
Water  $662,000— 

Q.  What  was  that  fuel  increase?  A.  $7,363,000  against 
$5,775,000 ;  that  is  $1,700,000  about.  Water  $662,000  against 
$589,000.  Lubricants  $157,000  against  $115,000.  Other  sup- 
plies $100,000  against  $92,000.  Road  trainmen  $4,046,000 
against  $3,441,000,  $600,000  increase.  Train  supplies  and  ex- 
jDenses  $1,319,000  against  $1,146,000.  Every  item  is  increased 
more  or  less.  Telegraphing  $316,000  against  $259,000.  Float- 
ing equipment,  operating,  $11 6,000,  against  $104,000.  Station- 
ery and  printing  $248,000  against  $208,000. 

Q.  What  are  the  total  increases  shown  on  that  sheet,  have 
you  them  there?  A.  Roughly  $5,200,000  in  transportation 
expenses  only,  conducting  transportation — 

Q.  And  that  includes  all  the  labor,  does  it  not?  A.  That 
includes  all  the  labor  in  that  department;  in  the  maintenance 
of  equipment  we  spent  $15,560,000  against  $13,903,000,  an  in- 
crease of  $1,600,000. 

Q.  Then  the  main  items  there  are  $5,200,000  in  the  trans- 
portation expense,  wages,  and  so  forth  and  maintenance, 
$1,600,000,  making  a  total  of  $6,800,000.  A.  We  spent  on 
maintenance  of  way  $16,707,000  as  against  $12,284,000;  there  is 
$5,000,000  there.  A  considerable  portion  of  that  of  course  is 
labor.  Roughly  the  $12,000,000  increase  in  expenses  was  di- 
vided, $5,000,000  for  conducting  transportation,  $5,000,000 
maintenance  of  way,  and  $2,000,000  maintenance  of  equipment. 

Q.  $2,000,000  maintenance  of  equipment,  $5,000,000  is 
maintenance  of  way —  A.  And  $5,000,000  transportation  ex- 
l^enses. 

Q.  Did  that  maintenance  of  way  include  any  double  track- 
ing?   A.    No,  that  is  all  charged  to  capital. 

•  Q.    But  you  have  not  separated  just  wliat  proportion  of  that 
went  to  labor?    A.    No.    We  can  ascertain  that. 

Q.    You  could  ascertain  that?    A.     Substantially  we  could. 

Q.  But  if  to  increase  your  business  it  costs  you  the  same 
in  labor  as  the  average  cost  of  the  Santa  Fe,  about  35  or  36 
per  cent.,  the  labor  account,  it  would  cost  you  on  a  $10,000,000 
basis  of  business  about  3-1/2  to  4  million  dollars  in  labor? 
A.    Yes. 


101 

Q.  That  is  putting  it  on  tlie  same  basis  as  tlie  prior  year's 
business?    A.    Yes. 

Q.  And  unless  your  la.bor  account  exceeds  $4,000,000  then 
there  has  been  no  increase  in  the  labor  account  of  the 
Santa  Fel  A.  It  seems  to  me  that  is  a  no7i  sequitur;  there 
has  been  no  increase  in  the  ratio,  if  that  is  what  you  mean. 

Q.     Yes,  there  has  been  no  increase  in  ratio.    A.    No. 

Q.  The  Santa  Fe  gets  just  as  much  out  of  a  dollar  of  labor 
under  one  condition  as  under  the  other?    A.    Yes. 

Increased  Cost  Maintenance. 

Q.  The  monthly  reports  made  to  the  Commission  show  that 
from  July,  1908,  to  May,  1909,  you  spent  for  maintenance  of 
equipment  $800,000  a  month,  while  from  June,  1909,  to  May, 
1910,  you  expended  $1,200,000  for  the  same  purpose,  a  month; 
there  is  a  difference  of  $5,000,000  for  maintenance  of  way 
compared  with  these  two  periods.  A.  Maintenance  of  way? 
You  said  maintenance  equipment. 

Q.     Maintenance  of  way  and  structures. 

Mr.  Norton.    What  two  vears? 

Mr.  Lyon.  From  July,"  1908,  to  Mav,  1909,  $800,000  per 
month,  and  from  June,  1909,  to  May,  1910,  $1,200,000  a  month 
was  expended,  an  increase  of  $5,000,000  on  way  and  structures. 
A.    Because  we  did  not  spend  enough  on  the  first  year. 

Q.    That  is  the  reason,  is  it  not?    A.    Yes. 

Q.  You  did  not  spend  enough  after  the  panic  of  1907.  A. 
No. 

Q.  Therefore  it  is  all  put  into  the  expense  account  of  1910  f 
A.     Oh,  no  ;  oh,  no. 

Q.  Well,  did  you  or  did  you  not  put  it  in?  A.  It  is  barely 
possible  that  some  things  we  postponed  from  a  previous  year 
that  were  put  into  this  past  year.  We  did  not  do  any  more 
however  in  either  year,  or  did  not  do  as  much  really  as  we 
ought  to  have  done.  I  do  not  think  any  railroad  in  this  west- 
ern countiy  did  as  much  as  it  should  have  done. 

Q.  I  understand  that.  I  never  heard  of  a  railroad  doing 
anything  like  what  its  president  or  its  officials  or  the  public 
thought  it  ouglit  to  do ;  but  the  fact  is  that  in  1909  you  were 
economizing  in  way  and  structures?    A.    Yes. 

Q.  And  you  spent  $800,000  a  month,  and  in  the  last  month 
of  the  year  1909  you  commenced  to  increase  that  way  and 
structures  account,  and  increased  during  that  year  $5,000,000? 
A.    Yes,  that  is  right. 


102 

Q.    That  covered  a  full  year  from  June  to  June?    A.      Yes. 

Q,  And  then  in  June,  1910,  it  dropped  suddenly  again  to 
$678,000.  A.  Every  month  of  June  you  will  find  very  radical 
differences;  you  will  find  erratic  statements  for  the  month  of 
June  in  almost  every  year  in  almost  every  large  corporation, 
because  the  month  of  June  is  a  time  when  the  whole  year's 
business  is  got  together  and  synchronized,  and  there  may  be 
large  jumps  either  way.  It  may  add  very  largely  to  the  ex- 
penses or  reduce  them ;  but  as  a  matter  of  fact  in  the  month  of 
June  last  we  did  drop  a  great  many  things  we  had  on  hand, 
because  we  were  not  sure  about  the  outcome.  We  preferred 
to  go  slow,  and  we  did  spend  a  great  deal  less  money  in  the 
month  of  June,  and  we  are  spending  less  in  the  month  of  July. 

Q.  I  do  not  think  the  extraordinarv  expense  of  $5,000,000 
in  1909— that  is  the  year  from  June,  1909,  to  June  1st,  1910, 
accounts  for  this  $12,000,000  increase  in  the  cost  of  earning 
the  $10,000,000  revenue.  A.  It  accounts  for  $5,000,000  of  it, 
but  it  ought  to  have  been  $7,000,000  or  $8,000,000  instead  of 
five. 

Q.  And  if  these  expenses  for  maintenance  of  way  and  struc- 
tures had  been  made  in  1908,  of  course  it  would  follow  as  a  mat- 
ter of  mathematics  that  you  would  have  earned  your  $10,000,- 
000  in  1910  at  probably  the  normal  rate  at  which  the  Atchison 
earns  its  income.  A.  If  we  had  had  the  money  to  spend  we 
should  have  spent  it,  even  if  we  had  spent  as  much  in  1909,  if 
we  had  had  as  much  to  spend  in  this  last  year,  we  would  have 
spent  it. 

Q.  But  it  would  hardly  be  fair  to  say  that  you  were  not 
operating  your  road,  so  far  as  the  increase  is  concerned,  on  a 
l^aying  basis?  A.  Our  expenses  were  no  more  than  normal 
this  last  year,  no  more  than  they  ought  to  be  every  year. 

Q.  No  more  than  normal?  A.  No  more  than  normal,  no 
more  than  they  ought  to  be  every  year. 

Q.  How  were  they  in  1908?  A.  They  were  not  np  to  what 
they  ought  to  be.  We  lost  ground.  I  do  not  mean  to  say  that 
the  road  was  not  maintained  in  good  condition,  and  was  not 
in  as  good  condition  at  the  end  of  the  year  as  it  was  at  the  be- 
ginning, but  it  was  not  as  much  better  as  it  ought  to  have 
been;  we  did  not  do  what  we  ought  to  have  done  and  what 
the  public  demanded  of  us, 

Q.  That  to  some  extent  explains  these  figures,  does  it  not? 
A.    To  some  extent,  yes. 

Q.  That  vou  were  economizing  in  wav  and  structures  in 
1908?    A.    Yes. 


]o;5 

Q.  And  when  1909  came  you  htad  the  money  and  you 
charged  it  to  the  1910  account?    A.    Yes. 

Q.  And  this  deficit  is  more  apparent  than  real,  as  to  the 
business  of  1910?  A.  It  is  quite  real  to  us ;  I  do  not  know  how 
it  may  appear. 

Q.  It  is  higher  than  for  this  year.  Are  there  any  large 
items,  any  other  large  items  like  the  $700,000  item  in  this  table 
you  spoke  of  for  the  year  1910?  A.  I  don't  know  of  any- 
thing. No,  I  think  not,  not  of  that  magnitude ;  not  of  the  class 
we  would  charge  to  operating  expenses. 

Q.  That  is  the  largest  item?  A.  That  is  the  largest  item 
I  recall. 

Q.  When  you  extend  your  tracks  at  your  stations — I  am 
uninformed  about  it — does  that  go  into  the  capital  account  or 
operating  account?     A.     It  goes  into  the  capital  account. 

Q.  All  goes  into  the  capital  account,  extension  of  station 
tracks?    A.    Yes. 

Investigation  of  Peices  Suggested. 

Q.  Just  a  few  questions.  I  think  the  most  vital  question 
here  before  the  Commission  is  how  to  determine  this  reason- 
able rate.  Yesterday  you  gave  your  view  on  that  subject,  that 
the  Commission  should  investigate  these  different  commodities 
and  the  different  points  between  which  they  are  being  shipped, 
investigate  the  manufacturing  conditions,  and  so  forth,  and 
arrive  at  what  is  the  value  of  the  service.  A.  I  have  sug- 
gested at  the  same  (time  that  they  investigate  the  prices 
charged  at  each  end  and  the  profits  that  are  made. 

Q.  You  are  still  of  the  opinion  that  the  question  of  the 
cost  of  the  movement  of  the  freight  and  the  value  of  the  prop- 
erty are  not  material  elements  in  fixing  a  schedule  of  rates! 
A.  I  do  not  know  that  I  made  myself  clear  about  that  yes- 
terday, although  I  tried  to. 

Q.  You  have  the  opportunity  now,  Mr.  Eipley.  A.  What  I 
said  was  that  the  party  who  was  making  a  rate  in  the  first 
instance,  deciding  on  what  was  a  reasonable  rate,  that  the 
question  of  the  cost  of  the  capitalization  need  not  enter  largely 
into  his  calculations  and  ought  not  to  enter  largely  into  his 
calculations.  That  statement  I  stand  by.  I  think  it  is  a 
question  of  the  value  of  the  commodity  and  the  value  of  the 
service  rendered.  That  is  the  first  thing  to  consider.  When 
it  comes  to  a  question  of  a  legal  body  whose  duty  it  is  to  limit 
rates,  then  the  return  which  the  carrier  is  getting  will  prop- 


104 

erly,  perhaps,  be  taken  into  consideration,  if  there  be  indica- 
tions that  it  is  getting  too  much. 

Q.  You  know  that  my  question  was  directed  to  a  schedule 
of  rates  and  not  to  an  individual  rate?  A.  Yes,  I  under- 
stand. 

Q.    And  your  answer  applies  to  the  schedule?    A.    Yes. 

Q.  Such  as  the  general  advance  out  in  this  territory,  to 
be  considered  as  being  a  general  advance  in  all  rates?  A. 
Yes. 

Mr.  Lyxde.  No,  Mr,  Lyon,  that  is  not  at  all  our  under- 
standing. 

Mr.  Lyon.  What,  that  there  is  not  a  general  advance  in 
rates? 

Mr.  Lynde.    Not  in  all  rates. 

Mr.  Lyon.  Oh,  no;  I  understand  that.  I  said  a  general 
advance  in  rates. 

Mr.  Lynde.    You  said  in  all  rates. 

Mr.  Lyon.  I  did  not  mean  literally  in  all  rates.  In  a 
large  number  of  the  rates,  that  would  probably  be  the  proper 
term  and  of  course  the  subject  would  have  to  be  approached 
on  a  different  basis  if  it  was  simply  what  would  be  the  rate 
on  grain  shipped  from  St.  Paul  to  Chicago,  for  instance. 

In  giving  this  opinion  of  yours  that  the  rate  should  be 
determined,  the  schedule  of  rates  should  be  determined  upon 
the  value  of  the  service,  I  presume  you  have  before  you  the 
figures  of  the  Atchison  Eoad  to  the  general  effect  that  it 
was  really  costing  them  less  to  do  business  now  than  at  any 
time  practically  in  the  last  five  years? 

Mr.  Ripley.    No,  I  had  no  such  figures. 

Mr.  Lyon.  Your  opinion,  anyway — you  would  be  of  that 
opinion  regardless  of  what  the  return  was  to  the  Santa  Fe, 
as  I  understand  your  position  was,  it  is  not  important  unless 
it  assisted  you  in  arriving  at  your  opinion?  A.  I  think 
that  our  cost  per  1,000  ton  miles  hauled  has  shown  a  steady 
increase  for  the  last  ten  years.  Our  actual  cost  of  transpor- 
tation has  shown  a  steady  increase. 

Mr.  Atwood.    Per  ton  per  mile?    A.    Per  ton  per  mile. 

Mr.  Lyon.  Of  course  what  the  public  is  interested  in 
and  of  course  the  carriers  are  interested  directly  in  the  ques- 
tion you  answer,  but  the  public  are  concerned  in  the  question 
of  what  becomes  of  a  dollar  you  take  from  them  in  the  per- 
formance of  your  public  duty?    A.    Yes. 

Q.  And  the  record  which  we  have  shows  that  the  Santa 
Fe  has  been  a  well  operated  railroad.    I  haven't  the  figures 


105 

for  1910,  only  for  1909,  but  they  show  that  the  operating  ex- 
penses have  decreased,  the  compensation  to  labor  has  de- 
creased, the  compensation  to  administration  has  decreased, 
the  value  of  material  has  decreased,  that  the  actual  return  to 
labor  has  increased  16  cents  in  the  last  five  years.  A.  16 
cents? 

Labor  Again. 

Q.  Per  employe's  working  day;  and  that  the  compensation 
to  capital  has  increased  in  the  same  period  79  cents?  A.  79 
cents  ? 

Q.  Yes,  In  other  words,  by  the  investment  of  16  cents  in 
the  sweat  of  the  brow,  as  it  is  sometimes  referred  to,  the 
vested  interests  get  79  cents.  A.  That  is  not  true,  that  state- 
ment; I  do  not  know  how  you  arrived  at  it,  but  it  is  not 
correct. 

Q.  Do  you  want  to  see  it?  A.  It  is  not  only  misleading 
but  it  is  absolutely  wrong.  In  the  first  place,  of  every  dollar 
we  earn  at  least  70  per  cent. — at  least  60  per  cent. — goes  back 
in  one  form  or  another  to  labor — out  of  every  dollar  we  earn 
gross — we  are  dependent  on  labor  to  that  extent. 

Q.  You  mean  out  of  every  dollar  that  you  earn —  A. 
Of  every  dollar  that  we  earn. 

Q.  You  pay  to  your  labor  60  cents?  A.  No,  but  it  goes 
back  to  labor  in  one  shape  or  another. 

Q.  That  is  another  proposition.  Confine  yourself  to  what 
the  Atchison  Road  does.  A.  You  can  not  do  that.  Our 
expenditures  are  not  confined  to  what  we  pay  to  our  laborers. 

Q.  W.e  have  it  all  here  as  reported  by  you.  A.  I  know 
you  have  it  all  there  but  you  only  use  a  piece  of  it. 

Q.  Well,  I  am  sure  it  is  not  intentional.  We  have  the 
compensation  of  labor  here  as  reported  by  your  office,  we  have 
the  value  of  material  as  reported  by  your  office?  A.  You 
have  the  compensation  of  one  class  of  labor  only. 

Q.  How?  A.  As  reported  to  the  Commission,  it  does  not 
take  in  all  labor. 

Q.  I  don't  know  except  what  you  report  to  the  Commission? 
4.  It  does  not  take  in  contractor's  labor.  It  takes  in  track 
labor  and  train  labor  and  all  that  sort  of  thing. 

Q.  Don't  your  contracts  go  into  your  material  account? 
A.     No,  they  go  into  our  roadway  and  track  account. 

Q.  Let  us  analyze  this  a  moment.  You  take  a  dollar  from 
the  public  in  freight  rates  over  the  counter;  what  do  you  do 
with  it?    A.    Pay  it  out  mostlv. 


106 

Q.  The  report  to  the  Commission  shows  that  you  paid 
in  1909,  33.49  cents  of  that  to  labor,  to  your  labor?  A. 
I  don't  know  what  the  classification  is  on  that. 

Mr.  Norton.  I  would  like  to  know  where  those  figures  came 
from? 

Mr.  Lyon.  They  were  obtained  from  the  annual  reports 
to  the  Interstate  Commerce  Commission. 

Mr.  Norton.  We  never  made  any  such  reports  as  that  to 
the  Interstate  Commerce  Commission. 

Mr.  Lyon.  My  statistician  will  have  to  be  held  responsible, 
then. 

Mr.  Norton.  All  right.  I  would  say  right  here,  we  have 
never  made  any  report  to  the  Commission  dividing  the  ex- 
penses of  the  Atchison  as  between  labor  and  material. 

Mr.  Bailey.  Let  us  stop  right  here  because  you  are  false  in 
your  assumption  there. 

Mr.  Lyon.  Mr.  Bailey,  this  matter  ought  to  be  straightened 
out. 

Mr.  Bailey.  I  wish  to  assist  you,  but  I  know  we  make  no 
such  report  as  that. 

Mr.  Lyon.     I  will  ask  you  a  question,  if  you  please. 

Mr.  Bailey.  Yes  if  you  please;  I  would  like  to  straighten 
you  out  because  you  are  all  getting  mixed  up. 

Mr.  Lyon.  Of  course,  I  don't  want  any  error  to  get  in  here. 
The  reports  made  to  the  Interstate  Commerce  Commission 
show  the  compensation  of  labor  under  that  head  at  twenty- 
five  million — 

Mr.  Bailey.    No,  it  does  not. 

Mr.  Lyon.    Then  of  course  that  is  a  question  between — 

Mr.  Bailey.  Our  reports  to  the  Interstate  Commerce  Com- 
mission are  based  exactly  on  the  rules  laid  down  by  the  Com- 
mission for  making  the  reports,  and  they  do  not  separate  as 
between  labor  and  material.  There  are  certain  accounts  there 
that  are  all  labor,  there  are  certain  accounts  that  are  all 
material,  and  there  are  certain  accounts  that  are  a  combination 
of  the  two.  I  do  not  understand  how  your  statistician  could 
have  separated  as  between  labor  and  material.  I  could  not 
do  it. 

Mr.  Lyon.  You  mean  by  that  that  there  might  be  some  of 
the  labor  mixed  up  with  the  material,  and  some  of  the  mate- 
rial mixed  up  with  the  labor? 

Mr.  Bailey.    Yes. 

Mr.  Lyon.  But  the  sum  of  the  two  you  will  admit  to  be 
properly  reported  to  the  Commission? 


107 

Mr.  Bailey.  Well,  as  Mr.  Ripley  has  stated,  the  contract 
work  we  would  not  class  that  as  labor  or  material.  We  would 
pay  a  man  $500  for  doing  a  job,  and  that  would  go  as  $500. 

Mr.  Lyon.    Where  would  that  go? 

Mr.  Bailey.    G-o  to  operating  expenses. 

Mr.  EiPLEY.  Gro  to  roadway  and  track  for  maintenance,  or 
wherever  it  was. 

Mr.  Bailey.    We  make  no  separation. 

Mr.  Lyon.  That  is  the  Interstate  Commerce  Commission 
report  would  go  into  the  account  of  material? 

Mr.  Bailey.    Well,  we  make  no  such  separation  there. 

Mr.  Atwood.  It  ultimately  finds  its  way  in  the  report,  as  a 
part  of  the  division  of  your  gross  income,  and  Mr.  Lyon 
wants  to  know  under  what  heading  would  that  expense  find 
itself  in  the  reports  you  file. 

Mr.  Bailey.  The  character  of  the  expenditure  would  deter- 
mine what  account  it  goes  into. 

Mr.  Lyon.  I  will  explain  that,  Mr.  Mueller  (statistician  for 
Commission)  has  explained  it  to  me.  This  division  is  made 
from  the  reports  which  you  furnish  to  the  Commission. 

Mr.  Bailey.  Oh,  from  the  reports  furnished  to  the  Commis- 
sion? 

Mr.  Lyon.    Yes. 

Mr,  BAILEY^  Well,  now  then,  you  turn  to  your  wage  state- 
ment over  there,  that  wage  statement  is  taken  from  our  pay- 
rolls, if  that  is  what  you  are  referring  to.    Is  it? 

Mr.  Lyon.    Yes. 

Mr.  Bailey.  The  wage  scale  is  taken  from  our  payrolls  in 
accordance  with  the  rules  of  the  Commission.  That  payroll 
is  partly  collectible  from  other  lines,  there  may  be  a  part  of 
it  charged  to  additions  and  betterments. 

It  is  not  segregated  as  to  how  much  of  that  payroll  is  operat- 
ing expenses  and  how  much  is  not.  That  is  taken  actually  from 
our  payrolls  as  we  pay  out  the  money  whether  it  goes  into 
your  expenses,  or  some  other  line's  expenses,  or  whether  it 
is  chargeable  to  additions  and  betterments. 

Mr.  Ripley.    In  other  words,  it  is  the  entire  payroll. 

Mr.  Bailey.  Yes,  it  is  merely  an  analysis  of  the  payroll, 
not  a  classification  of  accounts, 

Mr.  Lyon.  Well,  then,  Mr.  Bailey,  the  three  items  of  com- 
pensation of  labor  which  we  have  analyzed  here,  compensa- 
tion of  general  officers  and  value  of  material,  added  together 
produce  the  sum  which  you  set  down  as  your  operating  ex- 
pense? 


108 

Mr.  EiPLEY.  No,  not  that  because  that  covers  all  payrolls, 
construction  account — 

Mr,  Bailey.     No,  not  construction. 

Mr.  Ripley.  I  mean  additions  and  betterments  and  every- 
thing else.     That  is  the  sum  total  of  our  payroll. 

Mr.  Lyon.  Then  your  jDayrolls  are  not  as  large  as  they  ap- 
pear here  by  the  statement,  is  that  it?  A.  Our  operating 
loayrollsl 

Q.  You  say  your  operating  payroll  is  too  high  if  your  con- 
tention is  correct?    A.    Yes. 

Mr.  NoRToisr.  Then  can  we  have  a  copy  of  these  exhibits? 
Are  you  furnishing  copies  of  the  exhibit  you  are  working 
from  ? 

Mr.  Lyox.    I  have  not  offered  any  exhibit  yet. 

Mr.  Norton.    Well,  I  mean  will  you  furnish  copies  of  those  ? 

Mr.  Lyon.  We  will  later,  yes;  but  these  are  just  in  a  crude 
shape.  I  did  not  intend  to  present  this  as  an  exhibit  at  this 
time,  but  I  wanted  to  know  whether  his  opinion  that  the  rate 
should  be  constructed  on  the  basis  of  the  value  of  the  service 
was  at  all  influenced  by  the  fact  that  the  figures  showed  that 
there  had  been  no  increase  in  the  expense  to  the  Santa  Fe  in 
the  last  few  years? 

Expenses  Have  Increased. 

Mr.  Eipley.  There  is  no  legitimate  set  of  figures  that  will 
make  any  such  showing.  Of  course,  I  cannot  tell  what  you 
have  got  there. 

Q.     I  understand.    A.     I  cannot  attempt  to  analyze  that. 

Q.  if  these  figures  are  not  correct  they  might  not  have 
influenced  your  opinion  as  to  how  to  construct  the  rate.  I 
will  say  these  tables  will  be  properly  presented  at  the  next 
hearing  when  we  can  get  them  in  shape,  but  they  are  taken 
from  the  reports  and  analyzed  by  our  statistician. 

Q.  Your  reports  show  the  taxes  from  year  to  vear  on  the 
Santa  Fe?    A.    Yes. 

Q.  Something  was  said  yesterday  about  the  item  of  taxes; 
has  there  been  an  increase?    A.    A  very  large  increase. 

Q.  The  reports  show  that  there  has  been  a  decrease  in 
taxes.  I  mean  by  that  that  the  part  set  aside  for  taxes  out  of 
each  dollar  is  less  now  than  it  was  five  vears  ago,  or  substan- 
tially the  same.  It  was  3.24  in  1905,  and  3.41  in  1909?  A.  I 
have  not  figured  that,  that  may  be  true. 

Q.  It  would  not  be  considered  an  unreasonable  proposition 
as  the  revenues  were  collected  from  the  people  that  the  taxes 


109 

should  at  least  keep  on  a  par  with  the  collections?  A.  I  don't 
quite  see  the  connection  between  the  amount  of  tax  on  real 
property  belonging  to  the  corporation  and  the  amount  of  earn- 
ings. If  anybody  was  paying  an  income  tax,  if  we  were  paj'ing 
an  income  tax,  that  would,  perhaps,  be  a  fair  proi^osition, 
but  we  are  supposed  to  be  taxed  on  property. 

Q.  I  did  not  see  the  connection  of  it  when  your  attorney 
asked  you,  except  as  a  bare  bald  statement  that  in  the  last 
fifteen  or  twenty  j'ears,  your  taxes  had  increased,  as  I  sup- 
pose they  had  to  every  man  living  in  the  United  States'?  A. 
]  think  there  are  very  few  of  them  where  it  has  doubled  as  it 
has  with  us.  But  that  is  merely  an  item  of  one  of  the  things 
that  we  have  to  pay  more  for,  for  whatever  reason. 

Q.  Of  course,  in  1905,  you  were  only  operating  about  5,000 
miles  of  road  and  in  1909,  you  were  operating  7,500  or  so?  A. 
Ten  thousand. 

The  Car  Load  Oxce  More. 

Q.  Just  one  question  in  regard  to  this  carload  business 
again.  It  is  true  that  the  Santa  Fe  and  other  roads,  when  they 
have  a  small  carload  minimum  often  load  two  or  three  car- 
loads in  one  car?  Isn't  that  the  practice?  A.  I  don't  think 
it  is.    It  possibly  may  happen  occasionally,  but  I  doubt  it. 

Q.  You  mean  to  say  then  that  if  you  took  on  flour  at  Chicago 
destined  for  the  West,  San  Francisco,  or  some  western  point 
in  an  80,000-capacity  car,  and  the  flour  minimum  is  24,000,  I 
think,  that  you  would  take  three  cars  to  send  that  out  in,  when 
you  could  use  one?    A.    Oh,  no. 

Q.  It  is  a  fact  that  you  do  load  it  to  capacity,  don't 
you?  A.  Why,  we  do  if  we  have  it,  but  we  don't  have  it 
very  often.  In  many  cases  we  don't  have  it  because  the  mini- 
mum is  so  low. 

Q.  Yes?  A.  That  is  why  we  send  out  a  car  with  a  half  a 
load. 

Q.  In  many  other  cases  you  do  do  it?  A.  Of  course,  if  they 
bring  us  two  cars  we  put  it  into  one,  but  that  is  not  the 
way  it  works  out. 

Q.  You  don't  know  it  to  be  the  practice  to  take  the  car- 
loads in  Chicago  that  come  in  from  St.  Paul  and  consolidate 
them  and  send  them  east?  A.  Oh,  I  don't  doubt  but  that  is 
the  case  with  the  lines  east  of  here. 

Q.  You  don't  doubt  that  at  all?  A.  I  don't  doubt  that 
in  the  least. 

Q,  No,  neither  does  anyone  else  who  knows  anything  about 
transportation.  A.  That  is  what  they  ought  to  do  if  they 
operate  economically. 


110 

Q.  And  the  Santa  Fe  is  operated  economically?  A.  I 
don't  know.  It  would  sound  better  for  somebody  else  to  say 
that. 

Q.     That  is  all. 

Examiner  Brown.    Any  cross-examination,  gentlemen? 

Mr.  Lyok.  Just  one  question  in  regard  to  this  dollar,  one 
more  question.  I  did  not  follow  it  out  because  I  was  afraid 
there  might  be  some  error  in  regard  to  these  figures  and  I  did 
not  want  to  mislead  anyone  in  regard  to  them,  but  it  is  a 
fact  that  out  of  every  dollar  you  collect  from  the  public,  59.11 
is  your  operating  expenses,  that  is  what  your  report  shows! 
A.     That  is  as  to  a  portion  of  the  line  for  one  year. 

Q.  For  1908,  63.55;  1907,  61.54,  and  61.91—  A.  1908,  it 
was  68  plus. 

Q.  68  plus.  We  haven't  the  figures.  A.  That  is  my  recol- 
lection of  it.  We  earned  one  hundred  and  five  millions  and  we 
have  thirty-two  millions  left,  that  is  about  sixty-nine. 

Q.  That  is  for  the  system  and  not  for  the  railway?  A. 
Yes. 

Q.  And  five  millions  of  that  we  have  accounted  for  in  this 
one  item  of  increased  way  and  structure  account?    A.    Yes. 

Q.  And  Ithat  *would  reduce  your  68  to  63  if  that  had 
been  charged  off,  on  an  average?  A.  No.  That  is  on  the 
assumption  that  we  do  not  keep  the  property  up.  If  we  keep 
the  property  up,  we  spend  that  five  million  dollars  every  year, 
that  or  more. 

Deceease  Geoss  Eaenings. 

Q.  Then,  of  course,  you  might  not  be  earning  68.  It  might 
be  78  on  that  principle.  A.  This  next  year  our  earnings  may 
go  to  95,  but  we  will  have  to  keep  the  property  up  just  the 
same.  The  way  we  started  off  now,  I  think  the  chances  are 
they  will. 

Q.  What  do  you  mean  by  that?  A.  I  mean  we  are  likely 
to  see  a  decrease  in  our  gross  earnings  in  the  next  twelve 
months. 

Q.  What  do  you  attribute  that  to?  A.  I  attribute  it  to 
general  conditions  of  business. 

Q.  Are  the  general  conditions  of  business  bad?  A.  I  would 
not  say  that  were  bad;  they  are  not  as  good  as  they  were 
a  year  ago. 

Q,  What  is  the  trouble,  have  you  any  idea?  A.  Well,  I 
am  not  a  professor  of  political  economy  and  I  do  not  care  to 
venture  an  opinion. 


Ill 

Q.  I  have  read  so  many  articles  by  Mr.  Ripley,  I  had  an 
idea  you  were!  A.  I  do  not  care  to  venture  an  opinion 
as  to  what  the  trouble  is,  but  I  think  the  consensus  among 
the  merchants  and  others  in  this  room  is  that  the  conditions 
are  not  as  good  as  they  were  a  year  ago,  and  I  do  not  expect 
to  see  as  large  earnings  as  we  saw  last  year. 

Q.  Then  you  would  be  surprised  to  learn  that  for  July, 
1910,  and  for  the  first  two  weeks  of  August  1910,  the  traffic 
reports  show  a  large  increase  in  business?  A.  What  kind 
of  traffic  reports? 

Q.  The  financial  papers  and  the  reports  to  the  Interstate 
Commerce  Commission  so  far  as  they  are  there?  A.  Ours 
does  not  show  it.  I  gather  from  my  railroad  friends  and  neigh- 
bors that  theirs  don't  show  it.    We  start  off  with  a  decease. 

Q.     Sir?    A.    We  start  off  with  a  decrease  for  the  year. 

Q.  How  much  of  a  decrease?  A.  Quite  a  considerable 
decrease. 

Q.     Do  you  mean  for  the  month  or  for  the  year? 

Examiner  Bkow^n.    He  said  he  started  off  with  it. 

Mr.  Ripley.    The  year  begins  the  first  of  July. 

Mr.  Lyon.  Decrease  compared  with  what?  A.  The  month, 
compared  with  the  same  month  the  year  before. 

Q.  The  same  month,  say  July,  1910,  compared  with  July, 
1909?  A.  In  July  we  did  not  start  off  with  a  decrease,  we 
earned  a  little  more  in  gross.  But  August,  so  far,  is  off  three- 
quarters  of  a  million  dollars. 

Q.  That  is  out  of  about  how  much?  A.  Out  of  eight  mil- 
lion dollars. 

Q.     Three-quarters  out  of  eight  million?    A.    Yes. 

Q.  Then  in  your  view  of  the  matter,  we  are  approaching 
a  serious  condition  in  the  country?  A.  I  haven't  said  any- 
thing about  it;  I  said  I  anticipated  a  decrease  in  our  gross 
earnmgs.  That  may  or  may  not  be  considered  a  serious  mat- 
ter.   It  is  a  little  serious  to  us. 

Q.  So  far  as  the  last  figures  which  we  have  for  July,  are 
concerned,  it  does  not  show  that  the  pessimistic  view  which 
you  take  of  it  and  the  country  at  large,  is  correct?  A.  I 
think  that  is  probably  correct,  that  the  July  figures  won't  show 
that.  I  think  the  July  figures  are  about  the  same  as  last 
year. 

Q.  And  last  year  was  considerably  over  what  it  was  the 
year  before?    A.    Yes. 

Q.  Very  largely?  A.  Yes.  One  swallow  doesn't  make  a 
summer;  one  month  doesn't  make  a  year. 


112 

Mr.  Atwood.  Do  I  understand,  Mr.  Ripley,  you  to  say 
that  your  recollection  of  the  report  of  July,  1910,  is  approxi- 
mately the  same  as  the  year  of  July  1909?    A.    Yes. 

Q.  How  about  the  month  of  August,  what  do  you  know 
about  that f  Have  you  any  knowledge  of  that?  A.  This  pres- 
ent month  of  August? 

Q.  Yes.  A.  I  have  already  said  it  showed  quite  a  de- 
crease. 

Q.  Were  those  reports  made  to  you  by  the  week?  A.  Yes, 
sir. 

Q.  Can  you  approximate  the  decrease  during  the  first  three 
weeks  of  the  month  of  August?    A.    I  have  already  stated — 

Examiner  Brown.  He  did  so,  he  said  three-quarters  of  a 
million. 

Mr.  Atwood.    I  beg  pardon,  I  did  not  hear  that. 

Mr.  Atwood.  What  do  you  understand  as  a  financier,  if  you 
wlil  permit  me  to  apply  that  term  to  you —  A.  It  is  a  mis- 
application of  the  term  in  my  case. 

Makgin  of  Safety. 

Q.  I  fear  your  modesty  overcomes  the  proof.  How  do  you 
interpret  the  term  as  applied  in  financial  circles,  of  the  mar- 
gin of  safety?  A.  I  don't  know  as  there  is  any  adequate 
definition  for  that. 

Q.  Well,  just  give  us  yours,  it  will  be  adequate  enough 
for  this  purpose?  A.  I  think  if  I  were  an  investor  and  were 
going  to  invest  in  the  bonds  of  any  railroad  company,  I  should 
look  up  its  record  and  see  to  what  extent  its  earnings  had 
been  sufficient — had  sufficed  to  pay  dividends  on  its  stock,  and 
what  the  margin  was,  and  if  it  barely  earned  a  dividend  on  its 
stock,  I  should  doubt  the  wisdom  of  investing  in  its  bonds. 

Q.  Isn't  it  in  ordinary  parlance  that  term  applied  to  that 
difference  existing  between  the  total  income  of  a  corporation, 
railroad  or  otherwise,  and  the  fixed  charges?  A.  I  don't  think 
that  is  the  general  interpretation.  As  I  say,  I  disclaim  being  a 
financier. 

Q.  Do  you  know  what  the  margin  of  safety  quoted  by 
recognized  financial  authorities  of  your  company  is?  A.  No. 
I  don't  know.  I  don't  think  we  have  any  recognized  financial 
authority. 

Q.  You  have  heard  of  the  book  called  Moody's  Manual? 
A.    We  have  no  such  title  in  our  books. 

Q.     I  recognize  that,  but  there  are  certainly  books   that 


113 

are  recognized  by  you.  Do  you  know  Moody's  Manual?  A. 
Know  what? 

Q.     Know  Moody's  Manual?     A.     Oh,  yes. 

Q.  That  is  recognized  as  a  book,  the  statement  of  facts, 
or  purported  facts  contained  therein  is  recognized  among 
financial  people  everywhere?    A.    I  think  so,  yes. 

Q.  And  the  opinions  expressed  there  are  recognized  as 
financially  conservative?     A.     I  don't  know  as  to  that. 

Q.    You  have  no  opinion  as  to  that?    A.    No. 

Q.  And  as  to  the  estimates  that  it  has  put  upon  the  securi- 
ties that  are  offered  for  sale  upon  the  bond  or  stock  mar- 
ket, do  you  know  whether  they  are  recognized  to  be  of  value? 
A.    I  imagine  there  are  many  other  books  of  the  same  kind. 

Q.  But  I  am  speaking  of  only  the  one  book.  You  spoke 
yesterday,  as  I  understood  you,  in  rather  commendatory  terms 
of  the  management  of  the  Pennsylvania  and  the  methods  it  em- 
ployed.   Did  I  understand  you  correctly?    A.    Yes. 

Q.  Now,  then,  if  it  is  a  fact,  would  you  infer  or  do  you 
know  whether  or  not  the  margin  of  safety  recognized  in  finan- 
cial circles  as  applied  to  the  securities  of  that  road  is  higher 
or  lower  than  yours  ?  A.  I  should  say  it  was  higher ;  certainly 
its  credit  is  better. 

Q.  If  it  should  be  a  fact  that  these  authorities  recognized 
it  as  lower,  would  that  be  a  fact  that  would  at  all  influence 
in  your  mind,  your  thinking  well  of  your  own  management? 
A.    Well,  no,  I  don't  think  it  would. 

Q,    Your  modesty  still  would  control?    A.    I  think  it  would. 

Q.  Mr.  Eipley,  yesterday,  as  I  recall  it,  you  stated,  and  I 
think  corectly,  that  the  bonds,  stock  and  preferred  stock  issued 
in  1896  was  something  like  three  hundred  and  sixty  odd  thou- 
sand dollars.    Am  I  right!    A.    Millions. 

Q.     Millions,  I  mean?    A.    Yes,  I  think  so. 

Price  of  Old  Eoad. 

Q.  Do  you  remember  what  the  road  that  represented  that 
property  sold  to  the  reorganization  committee  for.  King,  Be- 
man,  and  Marawetz?  A.  No,  I  don't  remember  what  it  sold 
for,  and  it  doesn't  figure,  it  doesn't  cut  any  figure;  it  is  not 
material  really  what  it  was  sold  for. 

Q.  The  fact  that  it  was  sold  for  sixty-five  million  would 
not  affect  you?  A.  Not  at  all.  It  was  sold  to  the  owners,  sold 
to  the  bondholders.    That  does  not  affect  it. 

Q.  If  the  statement  is  made  that  it  was  sold  for  $60,000,000 
would  you  be  disposed  to  quarrel  with  it  from  any  recollection 
you  have?    A.    No,  those  reorganizations  are  always  handled 


114 

in  that  way,  it  doesn't  make  any  difference  what  price  is  paid 
for  it. 

Q.  But  the  fact  remains  that  that  was  the  price?  A.  It 
was  paid  for  in  bonds,  and  it  was  immaterial  what  was  set  on  it 
or  what  upset  price  was  put  on  the  property. 

Q.  I  would  like  to  know  if  your  understanding  of  the  work 
of  your  auditor  or  accountant's  office  or  statistician's  depart- 
ment, whatever  you  may  call  it,  is  such  that  they  do  not 
report  to  the  Interstate  Commerce  Commission  reports  from 
which  a  competent  statistician  might  not  be  able  to  determine 
the  labor  cost  per  mile?  A.  They  report  exactly  what  the 
Interstate  Commerce  Commission  demands  of  them. 

Q.  That  is  not  quite  an  answer  to  my  question.  If  you 
have  no  knowledge  of  it,  that  is  all  I  want  you  to  say.  I 
simply  asked  you  if  your  understanding  is  that  they  do  fur- 
nish figures  from  which  a  competent  statistician  can  determine 
the  labor  cost  per  ton  per  mile?  A.  I  think  I  will  let  the 
auditing  department  determine  that.  What  I  know  is  that 
they  furnish  what  the  rules  of  the  Interstate  Commerce  Com- 
mission require. 

Examiner  Brown.  Is  there  anything  else?  Is  that  all  of 
Mr.  Eipley? 

Mr.  Norton.    I  have  some  re-direct. 

Mr.  Thorne.  If  he  is  going  to  examine  him  on  re-direct  I 
would  Tike  an  opportunity  to  cross-examine  at  this  time. 

Examiner  Brown.    Very  well.    Go  ahead. 

Mr.  Thorne.  I  think  Mr.  Eipley 's  testimony  is  of  great 
importance  here  because  he  has  covered  the  thing  fully  and 
I  want  to  go  over  one  or  two  questions. 

Q.  You  made  some  statement  about  the  increased  cost  per 
ton  per  mile?    A.    Yes. 

Q.  Is  that  operating  cost,  or  did  you  refer  to  investment 
as  well  as  operating  cost?    A.    Operating  cost  only. 

Q.     Operating  cost?    A.    Yes. 

Q.  In  order  to  reach  that  conclusion  you  had  the  figures — 
A.    We  will  present  the  figures. 

Q.  Very  well,  then  I  will  not  consume  any  more  time  on 
that. 

Cost  of  Road. 

Now,  Mr.  Eipley,  in  regard  to  the  property  investment, 
you  said  that  the  investment  per  mile  at  the  present  time 
is  much  greater  than  it  was  a  number  of  years  ago?  A. 
Considerably  greater,  yes. 


115 

Q.  Could  you  state  approximately  about  how  much  greater 
per  mile  I  What  is  the  present  estimate!  A.  About  57,000 
per  mile. 

Q.  What  would  you  estimate  it  to  be  when  you  purchased 
the  road  in  1897?  A.  I  don't  think  there  was  any  estimate 
at  that  time,  but  we  can  tell  you  what  the  capitalization  was  at 
that  time  per  mile. 

Q.  I  don't  care  to  know  about  the  capitalization,  but  how 
much  greater  is  the  investment  today  than  it  was  then  per 
mile,  ten  or  twenty  per  cent,  greater,  or  twenty-five  per  cent, 
greater?    A.    No,  it  is  not  twenty-five  per  cent,  greater. 

I  would  not  like  to  answer  that  question  without  refreshing 
my  memory,  but  the  invesement  per  mile,  while  it  is  very  much 
larger  on  our  main  lines,  has  been  reduced  considerably  by  the 
construction  of  a  very  large  amount  of  cheap  mileage,  that  is, 
mileage  which — I  would  not  call  it  yet  complete,  but  it  has 
reduced  the  total  quite  considerably.  There  has  been  a  large 
amount  of  branch  mileage  built  that  has  tended  to  reduce  the 
cost  per  mile,  although  the  original  mileage  has  been  rebuilt 
and  is  worth  a  great  deal  more  than  it  was  at  that  time. 

Q.  Is  your  investment  today  per  mile  greater  or  less  than 
it  was  in  1907?    A.     G-reater. 

Q.  How  much  is  it  greater,  10  per  cent,  greater?  A.  I 
would  not  say — 

Q.  Well,  is  it  at  least  10  per  cent,  greater?  A.  I  do 
not  know. 

Q.  What  would  be  your  best  judgment?  A.  I  have  not  any 
judgment  on  the  subject.  I  do  not  remember  what  the  cost 
per  mile  as  it  stood  on  our  books  was  when  we  took  it  15 
years  ago,  so  I  do  not  know.    It  is  possible^ — 

Q.  You  have  not  any  way  of  finding  out  the  cost  per  mile 
except  the  capitalization,  have  you?  A.  Yes,  we  have  the 
cost  on  our  books. 

Mr.  NoETON.  That  is  shown  by  Exhibit  No.  1  which  was  in- 
troduced yesterday. 

Mr.  Thorne.  No,  not  the  investment  per  mile.  I  wish  you 
would  give  us —    A.    It  can  be  very  easily  found  out. 

Q.  I  wish  you  would  give  us  the  cost  per  mile  in  1907.  A. 
We  can  do  that,  but  I  do  not  carry  that  in  my  head. 

Mr.  LY0]sr.  No,  I  understand  that  is  the  cost  of  the  freight 
business  that  you  are  talking  about? 

Mr.  Ripley.  No,  he  is  talking  about  the  cost  per  mile  of 
road. 

Mr.  Lyon.    Well,  that  is  what  I  understood. 


116 

Mr.  Thokne.  If  the  present  rates  that  exist  to-day  were 
maintained,  just  who  would  it  be  a  hardship  on?  You  would 
still  have  enough  to  pay  your  labor  during  the  coming  year, 
would  you  not?    A.    I  think  we  would,  yes. 

Q.  You  would  still  have  enough  to  pay  your  ordinary  op- 
erating expenses  as  you  have  conducted  them  in  the  past?  A. 
I  think  so. 

Future  Dividends  Uncertain. 

Q.  You  would  have  enough  to  pay  your  dividends?  A. 
I  do  not  know  whether  we  would  or  not. 

Q.  You  have  not  failed  in  recent  years  to  pay  your  divi- 
dends, have  you?    A.    No,  we  have  not. 

Q.  The  probabilities  are  you  will  be  able  to  pay  your  divi- 
dends as  usual?  A.  That  is  an  assumption  that  you  can  make. 
I  do  not — 

Q.  When  was  the  last  time  you  failed  to  pay  your  divi- 
dends? A.  Well,  we  failed  to  pay  any  dividends  on  the  com- 
mon stock  in  three  or  four  years  after  the  reorganization. 
Since  then  we  have  been  paying. 

Q.  For  the  last  ten  years  you  have  never  failed  to  pay  divi- 
dends?   A.    I  think  that  is  true. 

Q.  You  have  never  failed  to  pay  the  interest  on  the  bonds? 
A.    No. 

Q.  So  they  will  probably  be  protected  during  the  coming 
years ;  you  have  nothing  to  prove  they  will  not  be.  A.  I  have 
not  anything  to  prove  they  will  not  be  or  that  we  shall  de- 
fault on  our  interest,  but  this  last  year,  which  was  the  larg- 
est gross  earnings  we  ever  had,  we  kept  up  the  property  and 
earned  8.8  per  cent,  on  our  capital  stock ;  but  I  can  see  expenses 
ahead  of  me  for  this  coming  year  enough  to  warrant  me  in  the 
belief  that  we  will  not  any  more  than  earn  our  dividends;  we 
might  possibly  earn  our  six  per  cent,  dividends ;  in  other  words, 
I  think  it  is  not  improbable  that  our  earnings  may  shrink  to  a 
point  where  we  will  not  earn  any  more  than  our  dividends. 

Q.  By  the  expenditures  you  refer  to  at  the  last,  that  you 
may  not  be  able  to  meet,  you  refer  to  these  facilities  that  you 
spoke  of  yesterday  largely,  do  you  not,  that  do  not  add  revenue 
to  the  road?    A.    Yes,  and  I  refer  to  a  variety  of  expenses — 

Q.  Not  to  the  ordinary  expenses,  but  to  these  improve- 
ments, is  what  you  refer  to?    A.    Yes. 

Q.  So  reduced  to  its  ultimate  analysis,  you  think  you  are 
entitled  to  increased  rates  in  order  to  build  these  facilities. 


117 

is  that  correct  ?    A.    In  order  to  keep  up  with  the  times  and  do 
what  the  public  expects  of  us. 

What  Should  Be  E-vrned. 

Q.  And  make  improvements  above  what  you  liad  last  year? 
A.  Certainly.  Any  railroad  that  fails  to  do  that  is  bound 
for  the  slide. 

Q.  You  think  that  ought  to  be  paid  out  of  operating  ex- 
23enses?    A.    Most  certainly  I  do. 

Q.  By  operating  expenses  there  I  mean  to  include  the  up- 
keep of  the  property,  including  all  that  is  necessary  to  turn 
your  road  over  at  the  end  of  the  year  in  just  as  good  condition 
as  you  found  it  at  the  beginning  of  tlie  year.     A.    Yes. 

Q.  And  yet  the  improvements  above  that,  is  what  you 
want  to  build  out  of  these  increased  earnings?  A.  Exactly. 
We  can  keep  up  the  road  in  the  same  condition  it  is  in  now 
and  probably  do  all  these  things  and  perhaps  we  would  pay 
our  dividends;  but  that  is  not  what  people  want,  that  is  not 
going  to  satisfy  anybody,  that  is  going  to  result  in  additional 
legislation  and  additional  persecution,  because  we  do  not  do  it. 

Q.  Then  you  want  to  appeal  to  the  vanity  of  the  people — 
A.    That  is  a  mere  item. 

Q.  And  the  comfort  of  tliem.  A.  That  is  a  mere  item.  I 
mentioned  that  because  every  little  town  wants  a  station;  if 
we  build  a  station  in  one  town,  and  the  people  in  the  other 
town  do  not  sleep  nights  until  they  get  one  equally  good,  even 
though  the  one  they  have  may  be  perfectly  satisfactory  for  our 
purposes;  but  that  is  only  one  little  item;  there  are  a  million 
things  the  communities  expect  of  us  all  the  time. 

Re-direct  Examination. 

Mr.  Norton.  In  view  of  the  cross-examination  of  yesterday 
I  want  to  introduce  practically,  I  think  completely,  information 
called  for  by  Mr.  Atwood  this  morning.  Exhibit  1  put  in 
yesterday,  in  addition  to  showing  the  gross  property  invest- 
ment, showed  the  interest  thereon.  The  paper  which  I  offer 
as  Exhibit  2  shows  the  interest  and  the  earnings  also  on  the 
capitalization. 

The  paper  I  offer  as  Exhibit  No.  3  shows  the  interest  on 
the  stock  after  payment  of  bond  interest. 

Mr.  Atwood.    That  is  for  a  series  of  years? 


118 

Mr.  Norton.  From  1896  to  1910,  during  the  whole  life  of 
the  company. 

The  paper  which  I  now  offer  as  Santa  Fe  Exhibit  No.  4, 
shows  the  disposition  of  surplus  from  1896  down  to  the  pres- 
ent date,  being  the  whole  history  of  the  life  of  the  company. 

Mr.  Norton.  So  that  there  may  be  no  question  about  the 
import  of  these  and  the  meaning,  I  will  just  ask  Mr.  Ripley 
to  state  the  gist  and  import  of  Exhibit  No.  2,  what  it  is  de- 
signed to  show?  A.  It  is  a  statement  of  the  Atchison,  To- 
peka  &  Santa  Fe  System  showing  the  outstanding  securities  in 
the  hands  of  the  public;  the  income  applicable  to  bond  in- 
terest and  stock  dividends;  and  bond  interest  and  dividends 
paid,  with  the  ratio  of  such  income  and  bond  issue  and  divi- 
dends paid  to  the  outstanding  securities,  after  being  averaged 
for  the  period  covered.  It  covers  the  period  from  January, 
1896,  to  June  30th,  1910. 

What  Has  Been  Earned. 

Q.  What  does  that  mean?  A.  That  means  that  under  the 
average  for  14  years  and  six  months  of  the  operation  of  this 
company  since  it  has  been  in  existence  the  net  earnings  were 
equal  to  4.75  per  cent,  on  the  entire  capitalization,  stock  and 
bonds. 

Q.  What  is  the  meaning  of  the  ratio  of  bond  interest  and 
dividends  paid  to  total  outstanding  securities,  3.75  per  cent.? 
A.  That  is  the  amount  paid,  not  the  amount  earned;  that  is 
the  amount  which  has  been  paid  out,  3.75  per  cent. ;  the  amount 
earned  was  4.75  and  the  amount  paid  was  3.75. 

Q.  This  Exhibit  No.  2  refers  to  the  entire  system?  A. 
Yes. 

Q.  Do  you  want  to  make  any  comments  on  the  column 
headed  "per  cent,  of  securities  outstanding"?  That  should 
be  per  cent,  on  securities  outstanding?    A.    Yes. 

Q.      Per  cent,  on  securities  outstanding,  it  should  be. 

Mr.  James.    In  both  columns? 

Mr.  Norton.  Yes,  percentage  columns,  one  after  B  and  one 
after  C.  Do  you  care  to  make  any  comments  on  that?  A.  I 
I  think  that  has  all  been  brought  out.  That  shows  that  the 
maximum  earnings  on  the  securities  outstanding  has  been  6.53 
per  cent.  That  w^as  obtained  only  in  one  year.  That  was  ob- 
tained in  1907,  and  in  1909  it  was  6.13  per  cent.,  but  never  has 
been  as  much  as  that  in  any  other  of  the  15  years. 

Q.    And    in    the    same    year    in     the     other     column    it 


119 

reads  4.46.  What  does  that  indicate?  A.  That  is  the 
amount  that  was  actually  paid,  the  rest  of  the  money  having 
gone  into  the  property.  The  amount  that  has  been  actually 
paid  on  the  capitalization  reached  its  maximum  in  1906,  and 
was  4.56. 

Q.  That  is  all  for  Exhibit  2.  Now%  I  pass  you  Exhibit 
No.  3. 

Examiner  Hillyee.  It  reached  its  maximum  in  another 
year,  according  to  this  table ;  4.65  in  1901. 

Mr.  EiPLEY.  That  is  wrong.  In  1901  it  w^as  5.14,  and  4.65 
was  paid;  and  5.14  was  earned. 

Mr.  Norton.  Not  all  the  earnings  w^ere  paid?  A.  There 
are  two  columns,  one  showing  what  was  earned  and  one  what 
was  paid. 

Q.  They  are  not  intended  to  agxee.  Do  you  care  to  com- 
ment on  Exhibit  No.  3?  That  covers  the  entire  system,  does 
it?  A.  Statement  showing  capital  stock  outstanding,  income 
balance  applicable  to  dividends  on  such  capital  stock,  dividends 
paid,  and  ratios  of  income  balance  applicable  to  dividends,  and 
dividends  paid  to  capital  stock  outstanding,  averaged  for  the 
period  covered. 

Q.  What  is  the  net  result  of  this  showing?  A.  The  net  re- 
sult shows  that  the  average  for  the  14  years  and  six  months, 
•there  was  a  balance  applicable  to  dividends  of  5.54  per  cent. 

Q.  And  that  you  paid?  A.  And  that  there  was  paid  3.49 
per  cent. 

Q.  What  is  the  red  ink  entry  after  1897?  A.  That  year 
we  failed  to  earn  our  interest  by  $78,000. 

Wheee  Money  Went. 

Q.  Now,  I  show  you  Exhibit  4.  Will  you  make  any  ex- 
planation of  that  that  you  think  will  help  to  an  understand- 
ing of  it;  that  is  the  disposition  of  the  surplus?  A.  This 
shows  what  we  did  with  our  money.  In  the  14  years  and  six 
months  there  has  been  paid  in  bond  interest  $134,000,000;  paid 
in  dividends  $112,000,000;  appropriated  for  fuel  reserve 
$2,447,000 ;  paid  as  discount  on  bonds  $8.738,000 ;  appropriated 
for  additions  and  betterments  $30,347,000,  leaving  a  remainder 
for  the  14  years  of  $24,231,000,  which  stands  on  our  books  as  a 
surplus,  but  which  is  not  a  cash  surplus,  being  all  invested  in 
the  property. 

Q.  You  speak  of  a  sum  written  off.  Is  that  all  shown 
in  the  statement  you  have  just  made? 


120 

Mr.  Bailey.  There  is  an  absolute  copy  of  what  became  of 
the  surplus,  unless  there  is  something — 

Mr.  KiPLEY.  This  statement  does  not  show  what  has  been 
written  off  except — 

Mr.  Norton.  By  deducting  $9,000,000  from  the  $30,000,000— 
A.  Oh,  yes,  practically  $21,000,000  has  been  written  off  there, 
and  in  addition  there  has  been  a  considerable  amount  of  fuel 
earning  properties  written  off  and  about  $3,000,000  of  land 
sales  written  off. 

Examiner  Hillyer.  In  this  statement,  Exhibit  4,  for  1910, 
you  have  appropriated  for  fuel  reserve  $703,000. 

Mr.  RIPLEY^    Yes. 

Fuel  Appeopriaton. 

Examiner  Hillyer.  Which  is  considerably  more  than  twice 
as  much  in  any  other  year.  For  what  was  that  money  ex- 
pended. 

Mr.  EiPLEY.  Well,  it  is  not  yet  expended.  It  is  simply  re- 
served. We  are  the  owners  of  considerable  fuel  properties,  and 
of  course  it  is  a  wasting  property ;  it  is  eating  up  capital  all  the 
time.  We  have  to  set  aside  a  sinking  fund  concerning  which 
there  is  no  fixed  rule.  We  set  aside  from  year  to  year  what 
we  think  is  a  safe  thing  to  set  aside  in  order  to  renew  those 
properties.  The  amount  we  set  aside  depends  a  good  deal  on 
what  we  have  taken  out  during  the  year,  and  that  varies. 

Examiner  Brown.  Of  course  that  is  just  one  item  and  a 
small  matter,  but  how  does  it  happen  that  in  the  year  1910  it 
ran  up  to  $703,000,  was  the  question  asked.  Do  you  remem- 
ber why? 

Mr.  EiPLEY.  I  do  not  remember  the  details  exactly,  but  it  is 
dealt  with  very  largely  by  what  we  consider  the  condition  of  the 
property.  For  instance,  our  oil  properties  in  California,  if 
they  show — if  any  particular  territory  shows  signs  of  failing 
and  apparently  we  are  pretty  near  the  end  of  it,  we  have 
to  set  aside  a  larger  surplus  to  provide  for  its  replacement 
somewhere  else.  Those  things  are  to  some  extent  a  matter  of 
estimate,  and  must  be,  because  we  cannot  tell  when  we  get  to 
the  end  of  our  string  on  those  things. 

Mr.  Atwood.  Right  in  that  connection  let  me  ask:  If,  as  I 
understand,  1910  was  a  bad  year,  what  reason  do  you  now  re- 
call for  putting  to  the  fuel  reserve  fund  $703,000  as  against 
$158,000  in  the  good  year  of  1908? 

Mr.  Ripley.    I  have  just  been  explaining  that. 


121 

Mr.  Atwood.  I  understood  you  to  speak  in  generalities ;  you 
said  it  might  under  certain  conditions.  Do  I  understand  that 
there  is — what  is  the  fact  with  regard  to  that  year,  what  fuel 
failure  or  contemplated  fuel  or  prospective  fuel  failure  was 
there  which  occasioned  you  to  take  out  of  this  lean  year  more 
than  three  times  as  much  as  you  did  out  of  the  good  year  to  put 
into  that  reserve  fund! 

Mr.  EiPLEY.  I  recall  one  very  notable  instance;  I  do  not  ex- 
actly know  what  the  moving  cause  was  as  to  this  particular 
thing,  but  w^e  have  one  oil  field  in  California  which  costs  us 
about  one  and  a  quarter  million  dollars  which  I  think  is  on 
its  last  legs,  and  we  have  been  taking  oil  out  of  it  until  I 
think  w^e  have  probably  got  only  a  year  or  two  left,  and  that 
is  one  of  the  things  that  we  have  to  provide  for. 

Mr.  Atwood.  Of  course,  the  smaller  the  net  return  shown — 
you  understand  to  be  a  situation  disclosed  that  would  tend  to 
make  an  argument  before  the  Commission  as  to  why  these  rates 
should  be  advanced. 

Mr.  Ripley.    Let  me  understand  that. 

Mr.  Atwood.    If  your  net  returns  are  small — 

Mr.  EiPLEY.    Oh,  yes. 

Mr.  Atwood.  That  is  an  argument  why,  as  I  understand,  you 
are  presenting  to  the  Interstate  Commerce  Commission  as  to 
why  there  should  be  this  advance? 

Mr.  EiPLEY.    Yes,  I  see. 

Mr.  Atwood.  Let  me  ask  you  if  this  triple  disposition  of 
funds,  more  than  three  times  that  of  the  good  year  1905  to  this 
fuel  reserve  was  done  because  there  was  in  the  mind  of  the 
management  the  idea  that  that  would  help  to  make  this  lean 
showing,  that  is  be  employed  as  an  argument  before  the  Com- 
mission now? 

Mr.  EiPLEY.  I  do  not  think  it  had  any  influence.  It  certainly 
did  not  on  me.     But  let  me  ask  you  why  you  took  1905? 

Mr.  Atwood.    I  took  1909. 

Mr.  EiPLEY.    You  took  1909  and  said  1905. 

Mr.  Atwood.  If  I  did  it  was  a  mis-speaking.  I  used  the 
figures  of  1909. 

Mr.  EiPLEY.  Suppose  you  now  take  over  a  series  of  years 
and  see  what  the  average  is. 

Mr.  Atwood.  All  right.  You  cannot  find  one  on  your  own 
showing  which  this  does  not  more  than  double  it;  so  that  out 
of  the  good  year  1907,  which  you  said  was  the  banner  year, 
and  1909,  the  next  banner  year,  you  had  less  than  one-third  de- 


122 

voted  to  this  fuel  fund  which  you  took  out  of  the  lean  year 
1910. 

Fuel  Property  Not  in  Rail  Operation. 

Mr.  Eipley.  Those  fuel  lands  are  not  part  of  the  operation 
of  the  road.  The  fuel  properties  are  owned — true,  they  are 
owned  by  the  railroad — but  the  market  price  of  the  oil  is 
charged  to  the  fuel  supply  companies,  and  the  fuel  supply 
companies  keep  their  own  books  and  make  their  own  profits 
and  the  portion  of  the  profits  which  we  set  aside  to  fuel  re- 
serve fund  does  not  affect  our  operating  matters  at  all. 

Mr.  Atwood.  These  funds  you  call  the  fuel  reserve  fund 
come  out  of  your  gross  revenue? 

Mr.  Ripley.  Yes,  but  a  larger  amount  comes  back  from  the 
fuel  properties. 

Mr.  Atwood.  Well,  the  fact  remains  that  is  a  depletion  in 
itself,  taken  by  itself — 

Mr.  Ripley.    Not  properly,  no. 

Mr.  Atw^ood.  Wait  a  moment.  Then  if  you  have  a  gross 
revenue  of  $100,000,000  and  you  set  out  of  that  gross  revenue 
$700,000,  not  yet  expended,  but  sometime  in  the  future  to  be 
expended — 

Mr.  Ripley.    We  know  it  has  to  be  spent. 

Mr.  Atwood.    You  said  it  has  not  been  spent? 

Mr.  Ripley.    No,  but  we  know  it  has  got  to  be  spent. 

Mr.  Atwood.  Well,  the  fact  remains  you  made  provision  in 
1909  for  this  same  anticipatory  trouble  by  setting  aside  $158,- 
000,  according  to  your  figures,  and  the  year  before  $98,000  and 
the  Je£^Y  before  $191,000. 

Mr.  Ripley.    That  is  not  right. 

Mr.  Atwood.  I  am  not  quarreling  with  3^our  accountant. 
Go  and  fix  it  up  with  Bailey  and  come  back  and  tell  us  what 
is  right. 

Mr.  Ripley.    There  is  nothing  of  that  sort  there. 

Mr.  Atwood.  Let  us  see.  Appropriation  for  fuel  reserve, 
1908,  $81,000 ;  1909,  $158,000;  1910,  $703,000  and  odd. 

Mr.  Ripley.    That  is  not  right. 

Mr.  Atwood.  Settle  it  with  Mr.  Bailey  and  then  we  will 
go  on.     Is  that  right,  Mr.  Bailey? 

Mr.  Ripley.    T  would  like  to  have  Mr.  Bailey  tell  you. 

Mr.  Atwood.  No,  let  him  go  on  the  stand;  if  you  do  not 
know,  all  right.  But  I  am  assuming  this  exhibit  which  your 
attorney  introduced  and  which  is  now  before  you  is  correct. 


123 

and  if  it  is  correct,  I  would  ask  you  again,  and  would  be  obliged 
for  a  categorical  answer  if  I  may  have  it,  as  to  whether  or 
not  the  desire  to  make  a  lean  showing  for  the  purposes  of 
arguing  before  the  Commission  at  this  hearing,  caused  you  to 
put  into  this  reserve  fund  which  you  have  not  yet  spent — you 
certainly  do  not  need  it  enough  so  you  have  spent  it — but  put 
it  in  there  as  reserve,  $703,000  out  of  this  lean  year,  when  in 
the  good  year  of  1907  you  only  put  $191,000  and  in  the  next 
good  year  of  1909  you  only  put  in  $155,000;  will  you  be  good 
enough  to  say  whether  or  not  that  did  in  anywise  enter  into 
the  occasioning  of  the  disposition  of  those  funds? 

Mr.  EiPLEY.    No. 

Mr.  Atwood.  All  right.  With  relation  to  the  possible  dif- 
ferentiation or  segregation  of  the  capitalization  of  your  sub- 
sidiary and  main  lines — 

Mr.  NoETON.  I  thought  you  just  wanted  to  ask  that  one 
question. 

Mr.  Atwood.  No,  I  beg  pardon,  I  thought  you  were  through. 
I  had  no  intention  to  be  rude. 

Mr.  Lyon.  I  have  one  or  two  questions  with  relation  to 
this  exhibit  which  I  can  defer  if  you  like. 

Mr.  Norton.  I  just  introduced  these  exhibits  and  intended 
to  finish  my  re-direct  examination,  and  then  you  can  take  up 
the  exhibits. 

In  the  cross-examination  of  you  yesterday  by  Mr.  Atwood, 
the  fact  was  brought  out  that  the  gross  operating  revenue  in 
1906  was  $47,000,000,  while  in  1907  it  leaped  to  the  enormous 
figure  of  $76,000,000.  I  pass  that  by  with  the  mere  comment 
that  it  developed  that  the  first  figures  contained  a  shortage 
of  mileage,  and  that  it  is  a  good  illustration  of  much  informa- 
tion that  goes  to  the  public  on  these  subjects. 

Labor  and  Capital  in  Making  Rates. 

In  the  course  of  the  cross-examination  Mr.  Atwood,  as  I 
understood  his  line  of  questioning,  endeavored  to  make  you 
say  that  the  additional  money  paid  to  emplo3^es  in  wages  was 
of  little  or  no  consequence  in  this  case.  Is  that  what  you 
intended  to  have  go  on  the  record  f  A.  No,  I  certainly  did 
not. 

Q.  So  was  my  understanding  of  your  original  testimony 
correct  in  this,  that  when  freight  men  come  to  the  making  of  a 
freight  rate  or  freight  schedule  they  take  no  account  of  the 
capitalization  of  the  road,  or  the  value  of  the  road,  or  the 
money  that  anybody  is  earning  as  an  employe — that  they  may 


124 

be  absolutely  ignorant  of  those  facts  and  still  make  reasonable 
and  proper  rates?    A.    That  is  what  I  said. 

Mr.  Lyon.    What  Mr.  Eipley  really  said  is  in  the  record. 

Mr.  Atwood.    That  is  so. 

Mr.  Norton.  I  think  not.  I  think  he  was  made  to  say  what 
he  didn't  intend  to  say  by  the  interjection  of  words  into  his 
mouth  that  he  did  not  intend  to  offer. 

Mr.  Atwood.  You  do  tlie  intelligence  of  your  witness  a 
great  deal  of  injustice. 

Mr.  Norton.  We  have  it  in  the  lecord  now  as  I  think  he 
intended  to  say  it  in  the  first  place. 

Discount  of  Bonds. 

Now,  coming  to  the  discounts  of  the  bonds  on  which  Mr.  At- 
wood laid  so  much  stress  yesterday  in  his  questions  whether 
you  might  not  have  sold  more  bonds  at  par  than  you  did,  I 
will  put  this  question :  Whether  you  might  not  have  sold  them 
at  par  if  you  had  offered  more  interest?    A.    Undoubtedly. 

Q.  Or  sold  them  at  a  higher  rate  or  more  nearly  pari  A. 
Probably  we  could  have  sold  a  5  per  cent.,  or  if  not  a  5  per 
cent.,  a  6  per  cent,  bond  without  any  discount,  but  that  would 
have  saddled  one  or  two  per  cent,  additional  interest  on  us  for 
the  life  of  the  bond,  say  40  or  50  years,  so  that  in  the  long 
run  we  would  have  taxed  this  generation  and  posterity — as- 
suming that  this  generation  and  posterity  are  going  to  let  us 
pay  the  interest — we  would  have  taxed  them  40  or  50  per  cent, 
instead  of  2-h  or  3  per  cent. 

Q.  Referring  once  more  to  this  $8,000,000  of  discounts, 
something  more  than  eight  millions,  which  was  referred  to  as 
value  stated  in  the  property  which  never  went  into  it,  I  should 
like  to  know  if  you  have  any  information  as  to  whether  Mr. 
i^twood,  who  thought  that  was  an  erroneous  imposition  upon 
the  property  and  upon  the  public,  or  his  Kansas  City  cohorts, 
came  to  your  assistance  with  money  for  the  purchase  of  those 
bonds  when  they  were  put  upon  the  market?  A.  I  do  not 
think  there  was  any  noticeable  struggle  on  the  part  of  any- 
body west  of  the  Allegheny  Mountains  to  buy  those  bonds. 

Mr.  Atwood.  No,  they  did  not  notify  me  personally  about 
the  matter. 

Mr.  Norton.  Did  they  notify  you  personally  about  the  sur- 
plus which  concerns  you  so  much  now? 

Mr.  Atwood.    No,  because  they  never  would  have  given  me 


125 

any  of  it  anyhow,  so  wliat  is  the  use  of  fussing?  That  goes 
to  the  legal  department. 

Mr.  Norton.  Not  all,  as  shown  by  the  tables  which  have 
gone  in  here.  Did  Mr.  Atwood  at  that  time,  or  any  of  his 
Kansas  City  legionaries,  give  you  any  advice  about  the  proper 
way  to  carry  this  load  under  which  you  were  struggling  uphill 
at  that  time"?  A.  I  cannot  differentiate  these  gentlemen  from 
a  lot  of  others ;  I  have  had  a  large  amount  of  advice  from  var- 
ious sources.    I  do  not  recall  now  who  they  were. 

Q.  Well,  you  have  had  more  advice  since  you  have  had  a 
surplus  than  you  had  when  you  had  a  deficit*?  A.  Yes,  we 
did  not  have  any  friends  then. 

Q,  Well,  Mr.  Montgomery  (of  the  shippers  committee),  who 
has  been  marching  on  the  outer  ramparts  here,  calling  the  peo- 
ple to  their  self-defense,  did  he  render  any  assistance  or  of- 
fer any  money  when  you  were  saddling  this  $8,000,000  upon  the 
public?  A.  I  do  not  recollect  that  he  did.  In  fact,  I  think  at 
that  time  Montgomery  was  an  employe  and  naturally  had  no 
money. 

Mr.  Montgomery.    And  offered  some  assistance,  too. 

Mr.  Atwood.    To  carry  the  load. 

Mr.  Norton.  Did  you  get  any  light  from  him,  if  he  did  not 
have  any  money  to  offer?  A.  I  do  not  think  he  volunteered 
any  advice  on  the  subject. 

Q.  Most  of  your  advice,  as  I  understand  it,  then,  has  come 
from  those  people  since  you  have  had  a  surplus?    A.    Yes. 

Q.     That  is  what  worries  them.    A.    Yes. 

Q.    But  you  were  left  alone  with  your  deficit?    A.    Yes,  sir. 

Eeasonable  Rate  Again. 

Q.  Now,  going  to  the  question  of  a  reasonable  rate  and  how 
it  is  ascertained,  as  I  understand  your  testimony  it  is  this, 
and  I  want  to  get  it  clear,  that  in  the  discussion  of  rates  in  a 
case  like  this,  where  it  appears  from  the  showing  that  we 
have  made  that  the  company  is  earning  inadequately,  and 
there  is  no  question  of  confiscation  involved,  that  what  the 
value  of  the  property  is  or  what  its  bond  representation  is,  or 
stock  representation  is,  is  practically  alien  to  the  case.  A.  I 
think  so. 

Q.  That  would  be  so  whether  you  were  fixing  the  rates 
through  your  traffic  men  or  whether  the  Interstate  Commerce 
Commission  were  fixing  them?    A.    Except  that  I  think  where 


126 

it  is  proposed  to  limit  income  by  a  law,  it  is  a  perfectly  proper 
inquiry  to  ascertain  what  that  income  is. 

Q.  By  that  1  understand  that  if  it  were  to  appear  that 
your  company,  like  some  of  these  shippers  who  are  repre- 
sented here,  were  making  25  per  cent.,  for  example,  on  an  in- 
flated capitalization,  then  it  would  be  proper  for  the  Commis- 
sion to  consider  the  capitalization  of  the  railway  company 
and  its  real  value?    A.    Very  likel^^ 

Q.    But  that  does  not  arise  in  the  case  at  bar. 

Mr.  Lyon.    Why  doesn't  it? 

Mr.  Norton.  Because  we  have  no  such  showing  here,  and 
because  we  make  the  showing  not  only  by  the  exhibits  here 
that  we  are  not  earning  what  we  should,  but  also  by  the  oral 
testimony  of  the  witness  that  this  business  has  moved  freely 
and  as  we  shall  endeavor  to  show  later,  that  these  people  have 
prospered  greatly,  which  is  the  highest  test  of  a  reasonable 
rate. 

Mr.  Lyon.  Your  explanation  is  entirely  satisfactory.  I 
did  not  know  the  why  of  it. 

Mr.  Norton.  There  is  another  case,  as  I  understand  it,  in 
which  the  valuation  of  your  property,  or  the  bonded  indebted- 
ness or  the  stock  issue  may  be  taken  into  account,  and  that 
would  be  such  a  case  as  was  read  to  you  yesterday  with  more 
or  less  oratorical  effect,  the  Nebraska  case,  where  the  Com- 
mission fixes  a  state  schedule  of  rates,  for  example,  and  the 
charge  is  that  they  are  confiscatory ;  in  a  case  of  that  kind  the 
value  of  the  property  would  be  properly  considered?  A.  Ab- 
solutely necessary,  if  the  defense  is  on  the  ground  of  confisca- 
tion. 

Q.  The  question  was  put  to  you  rather  persistently  yester- 
day as  to  whether  all  other  things  being  equal,  whatever  is 
meant  by  that,  if  a  rate  is  reduced,  a  great  tonnage  will  not 
follow,  and,  therefore,  greater  revenue  result.  I  will  ask  you 
whether  under  existing  rates,  all  of  the  citrus  fruit,  for  ex- 
ample, does  not  move  out  of  California?    A.    Everything. 

Q.  If  the  citrus  fruit  rate  were  to  be  cut  in  two,  would  you 
move  another  orange  or  lemon?    A.    No. 

Q.  So  that  the  proposition  is  erroneous  as  insisted  upon 
and  stated,  as  a  matter  of  practice? 

Mr.  Lyon.  Your  opinion  is,  Mr.  Ripley,  that  if  the  citrus 
fruit  rate  were  cut  in  two  from  California  east,  that  no  more 
citrus  fruit  would  be  shipped  east? 

Mr.  Ripley.    Absolutelv. 


127 

Mr.  Norton.    You  cannot  ship  more  than  they  have? 

Mr.  Atwood.  Other  people  could  go  into  business  and  prob- 
ably would  do  so  if  the  inducement  was  offered  in  that  way. 

Mr.  Norton.  That  is  another  proposition.  They  might  or 
might  not.  Rates  have  been  lowered  and  people  have  not  gone 
into  business. 

Mr.  Lyon.  I  just  wanted  to  get  the  witness  to  indicate  his 
opinion. 

Mr.  EiPLEY.  My  answer  was  "no,"  it  would  not  increase  the 
business  a  particle. 

Mr.  Lyon.    There  would  be  no  more  business. 

Enlarged  Equipment. 

Mr.  Norton.  Mr.  Eipley,  in  answer  to  a  question  by  Mr. 
Lyon,  representing  the  Commission,  this  morning,  you  stated, 
as  nearly  as  I  can  recall  it,  that  there  was  no  mistake  in  en- 
larging equipment.  I  understood  your  testimony  yesterday 
directly  to  be  that  the  enlarging  of  the  equipment  had  not 
measured  out  to  expectations  fully.  A.  I  said  that,  but  I  did 
not  mean  to  say  that  it  was  a  mistake.  I  simply  said  it  did  not 
do  altogether  what  we  expected  of  it.  I  spoke  of  that  and  of 
the  increase  in  our  engines  and  various  other  things,  as  having 
some  drawbacks.  I  did  not  mean  to  say  it  was  not  the  thing 
to  do  or  was  not  profitable. 

Mr.  Lyon.  There  is  no  danger  of  going  back  to  small  equip- 
ment, that  is  not  the  policy  of  the  railroads? 

Mr.  EiPLEY^    Oh,  no. 

Mr.  Norton.  No,  I  wanted  to  make  it  clear  that  he  said  the 
increase  did  not  measure  up  fully;  it  has  been  of  value,  but  it 
has  not  been  of  the  full  value  anticipated. 

Mr.  Lyon.    His  anticipations  were  too  great. 

Mr.  Norton.  Well,  it  needs  high  aims  in  this  country  as  it 
has  been  developed.  And  that  reminds  me,  Mr.  Eipley,  has 
the  United  States  from  the  Alleghenies  west,  or  even  from 
further  east  than  that,  been  developed  industrially  by  the  ap- 
plication of  the  rate-making  principle  that  you  have  stated 
here  in  your  testimony?  A.  I  think  it  is  due  to  that  almost 
wholly. 

Q.  The  rapidity  of  development,  the  thoroughness  of  de- 
velopment, has  been  due  to  that,  in  your  opinion?  A.  I  think 
so. 

Mr.  Lyon.    I  thought  it  was  due  to  the  tariff. 


128 

Mr.  Norton.  That  depends  on  whether  you  are  a  Democrat 
or  a  Kepublican,  or  an  Insurgent. 

Mr.  Norton.  Recurring  once  more  for  a  moment  to  the 
question  whether  the  change  of  rates  will  move  a  product,  my 
attention  has  been  called  to  the  fact  that  the  price  of  lumber 
from  the  yellow  pine  districts  has  fluctuated  from  $14  to  $21 
a  thousand  in  the  last  three  years,  while  the  freight  rate  has 
remained  stationary.  Do  you  know  anything  about  that?  A. 
Yes,  in  general  that  statement  is  correct.  There  are  a  great 
many  of  those  things  that  are  fluctuating  in  value,  although 
the  freight  rate  does  not  fluctuate.  T  think  perhaps  I  ought  to 
explain  one  thing. 

Q.  Very  well.  A.  The  question  that  was  asked  about  the 
reduction  of  rates  awhile  ago,  and  the  question  that  was  asked 
yesterday  about  the  reduction  of  rates,  about  a  possible  in- 
crease in  volume  of  traffic  by  a  reduction  in  rate. 

Mr.  Lyon.    That  has  been  answered  fully. 

Mr.  EiPLEY.  It  has  been  answered  fully,  but  I  think  the  an- 
swer might  be  distorted,  or  misunderstood.  For  instance,  your 
question  as  to  the  citrus  fruit  business. 

Mr.  Lyon.    Yes. 

Mr.  Ripley.  I  said  that  a  decrease  of  50  per  cent,  in  the 
citrus  fruit  business  would  not  increase  the  movement.  I  do 
not  mean  to  say  by  that  that  if  the  rates  from  everywhere  else 
were  maintained  at  the  present  level,  that  a  decrease  in  the 
citrus  fruit  rates  from  California  might  not  slightly  encour- 
age the  growing  of  more  citrus  fruit;  possibly  it  would,  but  if 
it  was  followed  by  a  corresponding  decrease  everywhere  else, 
as  presumably  would  be  the  case,  it  would  not  increase  ihe 
business. 

All  the  citrus  fruit  than  can  be  marketed  is  raised  now,  ex- 
cept in  the  matter  of  lemons.  All  the  oranges  that  can  be 
raised  are  already  raised — I  mean  all  that  can  be  sold  are  al- 
ready raised,  and  it  would  not  increase  the  business  at  all. 

Mr.  Ly'on.  Do  I  understand  you,  then,  to  seriously  say  that 
the  California  orange  business  has  reached  its  maximum? 

Mr.  Ripley.  With*  the  present  population  of  the  United 
States,  I  think  it  has.  The  orange  is  a  luxury  rather  than  a 
necessity,  and  it  has  to  be  pushed  off  even  now. 

Mr.  Lyon.  Isn't  it  a  rule  in  transportation  that  luxuries  are 
more  largely  used  on  a  low  cost  than  necessities? 

Mr.  Ripley.    Well,  but— 

Mr.  Lyon.    Well,  answer  the  question,  isn't  that  true? 


129 

Mr.  EiPLEY.    Yes,  I  think  that  is  true. 

Mr.  Lyon.  I  have  heard  some  of  the  traffic  men  say  that — 
that  the  way  to  move  luxuries  is  to  give  them  a  low  rate.  A 
fellow  is  not  going  to  consume  more  coal  because  he  can  get  it 
cheaper,  because  if  he  gets  warm  once  he  stays  warm ;  but  if  he 
gets  oranges  cheap  he  will  eat  more  of  them.  I  have  taken 
testimony  in  California  on  the  orange  business. 

Eates  and  Prices  Consumers  Pay. 

Mr.  Ripley.  One  cent  an  orange  is  about  what  it  costs  to 
bring  one  here  now. 

Mr.  Norton.  Six  cents  a  dozen?  A.  Six  cents  a  dozen, 
half  a  cent  an  orange. 

Mr.  EiPLEY.  I  do  not  think  a  reduction  of  a  quarter  of  a 
cent  an  orange  would  make  any  difference  in  the  consump- 
tion. 

Mr.  Lyon.  You  think  that  the  general  proposition  as  stated 
by  traffic  men  is  not  true,  then? 

Mr.  Ripley.  I  don't  know  what  the  general  proposition  as 
stated  by  traffic  men  is. 

Mr.  Lyon.  I  will  state  it  to  you:  that  when  you  reduce  the 
cost  of  a  luxury,  you  thereby  increase  the  consumption,  but 
when  you  decrease  the  cost  of  a  necessity,  you  do  not  so  largely 
increase  the  consumption. 

Mr.  Ripley.  I  think  that  is  probably  true  as  a  general  propo- 
sition, but  the  freight  rate  constitutes  so  infinitesimal  a  por- 
tion of  the  cost  that  that  does  not  apply. 

Examiner  Hillyer.  Mr.  Ripley,  in  your  qualification  of  the 
orange  case  just  now,  do  you  intend  also  to  qualify  your  gen- 
eral statement  made  yesterday  that  the  reduction  of  rates  did 
not  increase  the  movement  of  freight? 

Mr.  Ripley.  Onlj^  to  that  extent;  I  am  assuming  that  the 
reduction  is  followed  by  a  corresponding  reduction  from  other 
markets.  Of  course,  if  you  could  take  in  one  particular  place 
in  the  United  States  and  reduce  the  rate  there  and  did  not  re- 
duce it  elsewhere  it  would  be  followed  by  an  increase  of  ton- 
nage presumably.  But  if  the  parity  is  maintained  it  would 
make  no  difference. 

Examiner  Hillyer.  All  of  your  testimony  on  that  point, 
then,  presumes  that  the  parity  is  maintained? 

Mr.  Ripley.    Surely. 

Mr.  Lyon.  Is  that  all,  Mr.  Norton?  I  had  a  question  I 
wanted  to  ask  about  this  exhibit. 

Mr.  Norton.    I  think  that  is  all. 


130 

Re-Cro'i-s  Examination. 

Earnings  for  1910. 

Mr.  Lyon.  In  reference  to  this  exhibit  that  has  been  put  in, 
this  Exhibit  No.  4,  which  brings  to  me  the  first  news  I  have  of 
the  1910  operations,  it  shows  that  you  earned  a  million  and  a 
half  less  gross  above  the  operating  revenues — under  the  head- 
ing. Earnings  of  Property  Available  for  Bond  Interest,  Divi- 
dends and  Voluntary  Appropriations — was  in  1910  one  and  a 
half  million  dollars  less  than  in  1909.  A.  I  think  it  was  about 
two  million  dollars,  wasn't  it? 

Mr.  Norton.    What  exhibit  is  that? 

Examiner  Hillyer.    Exliibit  No.  4 

Mr.  Lyon.  It  is  $1,146,000,  to  be  exact,  about  $1,000,000.  A. 
Oh,  yes. 

Q.  In  other  words,  in  1910  you  had  $1,100,000  less  on  hand 
to  dispose  of  to  your  dividends  or  what  purpose  you  choose, 
than  you  had  the  year  previous  ?  A.  That  does  not  correctly 
state  our  operations.  Our  operations  resulted  in  a  loss  of 
about  $2,000,000,  I  think  that  is  the  figure  there  somewhere. 

Q.  Well,  I  am  just  examining  you  now  as  to  this  state- 
ment.   A.    Yes. 

Q.  This  exhibit  which  you  filed  shows  that  for  the  year 
ending  June  30, 1910,  you  had  $1,100,000  less  to  distribute  than 
you  had  in  the  year  ending  June  30,  1909?  A.  Yes.  As  a 
matter  of  fact,  it  was  more  than  that,  but  let  it  go  at  that. 

Q.  Well,  they  are  your  figures,  so  I  don't  know,  and  this 
is  the  first  information  I  have  had  as  to  the  1910  operations. 
You  show  that  the  interest  on  your  bonded  indebtedness  in- 
creased $1,600,000?    A.    Yes,  sir. 

Q.  That  is  $400,000  less  to  be  added  in  fixed  charges?  A. 
Yes. 

Q.  Than  the  amount  you  had  to  distribute?  A.  The  pre- 
vious year,  yes. 

Q.  It  also  shows  in  this  unfortunate  year,  1910,  you  dis- 
tributed $5,000,000  more  in  dividends.  A.  Yes,  that  is  be- 
cause the  bonds  were  converted  into  stock,  taken  off  of  one 
side  and  put  onto  the  other. 

Q.  By  converting  bonds  into  stock  you  decreased  charges 
a  million  and  a  half  and  increased  the  income  to  your  men 
who  were  fortunate  enough  to  convert,  to  $5,000,000  ?  A.  No, 
because   the   other   stockholders,   those  who   were   fortunate 


131 

enough  to  convert,  as  you  say,  got  their  proportion.  They  got  a 
small  portion  of  that. 

Q.  But  $5,000,000  went  to  those  that  converted,  and  the 
unconverted?    A.    Yes. 

Q.  And  the  same  year,  it  has  been  brought  out  here,  you 
appropriated  a  good  deal  more  to  your  coal  fund,  and  you  re- 
ceived a  million  dollars  more  premium  on  your  bonds  that 
year?    A.    Yes,  sir. 

Q.  And  with  all  that,  you  passed  to  your  surplus  account 
in  this  unfortunate  year  1910,  $5,400,000  odd?  A.  What  we 
received  as  a  bonus  on  our  bonds  would  not  apply  to  our  sur- 
plus account  at  all. 

Q.  What  becomes  of  it?  A.  Credited  to  the  cost  of  prop- 
erty, as  you  will  see  by  the  red  figures  on  the  bottom,  taking  in 
reduction  of  the  amount  for  discount  on  bonds. 

Q.  It  really  goes  into  the  amount  that  you  can  appropriate 
for  the  purpose  of  surplus  accounts,  on  the  bonds,  doesn't  it? 
A.  No,  it  does  not;  it  goes  into  our  cash,  but  not  as  a  part  of 
the  earnings  of  the  road,  and  it  is  applied  in  reduction  of  our 
capital  account.  A.  Is  it  applied  on  this  statement  heref  A. 
Yes,  sir. 

Q.  What  column  is  it?  A.  Under  the  head  of  discount  on 
bonds.  You  see  it  is  taken  out  of  our  discount.  The  red  fig- 
ures in  the  1910  column  show  $1,600,000  surplus — what  state- 
ment have  you  got,  No.  4? 

Q.    No.  4.    A.    Do  you  see  the  red  figures  there? 

Q.  I  thought  that  indicated  the  premium  on  your  bonds. 
A.    It  does,  but  it  is  deducted  from  discount  account. 

Q.  I  cannot  tell  by  these  figures.  A.  The  whole  column, 
the  heading  of  the  column,  shows  discount  on  bonds,  and  that 
is  put  in  here  as  premium.  You  are  correct  in  saying  it 
represents  premium,  but  it  is  deducted  in  our  accounts  from 
the  total  amount  of  discount,  which  otherwise  would  be  $9,- 
000,000. 

Examiner  Beown.    You  mean  in  the  next  column? 

Mr.  Ripley.  No,  this  column;  eight  million  dollars  is  the 
amount,  and  if  it  was  not  for  this  credit  it  would  be  $9,000,000, 
do  you  see? 

Mr.  Lyon.  I  see.  If  it  were  added  in  it  would  be  $10,000,- 
000,  instead  of  $8,000,000?    A.    Yes. 

Q.  Let  me  ask  you,  in  your  opinion,  upon  this  showing, 
is  this  a  bad  showing,  do  you  consider,  for  1910,  from  a  rail- 
road standpoint?    A.    I  think  it  is  a  very  good  showing,  con- 


132 

sidering  what  we  have  to  contend  with,  but  I  do  not  consider 
that  it  is  a  safe  margin. 

Q.  And  that  is  the  year  that  you  made,  what  I  term  at 
least,  these  extraordinary  expenditures  for  way  and  struc- 
ture?   A.    I  do  not  admit  them  to  be  extraordinary. 

Q.     I  know,  but  I  say  I  term  it  that.     A.     Yes. 

Q.  Was  there  any  increase  in  wages  during  that  year?  A. 
Yes,  sir. 

Q.    And  they  are  included  here?     A.     Very  largely,  yes. 

Q.  One  other  question  and  I  will  be  through  with  Mr. 
Ripley.  There  was  quite  an  important  bitter  strike  here  in 
the  spring  of  1910,  was  there  not  ?  A.  No,  sir ;  no  strike  here 
at  all. 

Q.    It  didn't  get  to  a  strike?    A.    No,  sir. 

Q.  I  was  misinformed  then.  Didn't  the  switchmen  or  any- 
body strike  here  in  the  spring?     A.     No,  sir. 

Q.    Well,  I  was  misinformed.    A.    No,  sir. 

Q.    That  is  all. 

Mr.  Atwood.  About  Exhibit  3,  will  you  turn  to  it  Mr. 
Ripley?  You  will  observe  in  the  column  third  from  the  right 
as  you  look  at  the  sheet,  the  per  cent,  on  stock  outstanding, 
and  comparing  it  with  income  balance  applicable  to  dividends 
which  is  the  preceding  column,  I  take  it  that  the  percentages 
appearing  in  the  third  column  from  the  right  have  refer- 
ence to  the  per  cent,  of  income  that  could  be  applied  upon 
dividends  or  upon  the  stock?  A.  That  is  the  per  cent,  that 
is  earned,  not  the  per  cent,  which  was  paid. 

Q.  I  understand.  That  might  have  been  applied,  had  you 
chosen  to  so  apply  it?     A.     Yes. 

Q.  Now,  then,  about  half  of  your  stock  is  preferred,  speak- 
ing in  round  numbers?    A.    No,  not  now. 

Q.  To  be  exact,  the  preferred  stock  as  shown  bv  vour  re- 
port in  1909  is  $114,000,000?  A.  $235,000,000  com^mon,  that 
is  about  one-third  and  not  half. 

Q.  $114,000,000  preferred,  and  common  $165,000,000?  A. 
Tlie  common  is  $121,000,000  in  1909  against  $114,000,000  pre- 
ferred, and  in  1910  it  is  $165,000,000  against  $114,000,000. 

Q.  Now,  then,  the  computations  which  were  made  here, 
we  will  take  1910,  included  the  preferred  and  the  common 
upon  the  same  interest  bearing  or  possible  interest  bearing 
basis?  A.  The  third  column  from  the  right  to  which  you 
refer,  indicates  the  percentage  of  net  earnings  that  was  ap- 
plicable to  dividends  of  all  kinds. 

Q.    Of  all  kinds?    A.    Yes,  sir. 


133 

Q.  Now,  then,  what  was  the  per  cent,  that  was  applied  to  be 
paid  "under  your  preferred  stock  contract  in  order  to  dis- 
charge your  obligations  to  the  preferred  stockholders?  A. 
Five  per  cent. 

Q.  Now,  then,  if  you  had  made  your  computation  on  the 
basis  of  five  per  cent,  for  the  preferred,  and  given  the  balance 
to  the  common,  your  common  stock  would  have  drawn,  or 
there  would  have  been  a  percentage  like  8.8  on  your  common, 
would  there  not?    A.    No. 

Q.  What  would  it  have  been?  A.  Well,  that  computation 
has  not  been  made  here.  I  do  not  know  just  what  it  would 
have  been. 

Q.  Will  you  ask  your  very  competent  accountant  to  make 
computations  in  connection  with  this  Exhibit  3,  so  as  to  make 
disclosure  of  what  would  be  the  income  balance  applicable 
to  dividends  on  common  stock  if  you  had  paid  but  five  per 
cent,  required  upon  the  preferred?    A.    No  objection  to  that. 

Moke  About  Capitalizatiox. 

Q.  All  right,  sir.  Now,  then,  with  relation  to  the  possi- 
bility of  differentiating  capitalization,  to  use  the  language 
of  Mr.  Bailey,  if  I  do  not  misquote  him,  on  what  we  might 
call  the  subsidiary  lines,  the  balance — the  branch  lines,  from 
that  of  the  System — to  shorten  the  matter  I  will  state  as  I 
understand  it,  and  you  will  set  me  right  where  I  am  wrong. 
The  Atchison,  Topeka  &  Santa  Fe  Eailway  System  as  a  cor- 
poration itself  owTis  and  operates  seven  thousand  odd  miles 
of  railroad ;  that  the  same  corporation  has,  by  the  purchase  of 
the  stock  and  bonds  of  certain  other  railroads,  become  the 
owner  of  the  capitalization  or  paper  representative  of  the 
capitalization  of  those  subsidiary  lines.    A.    Yes,  sir. 

Q.  They  are  still  retaining  their  corporate  entities,  as  I 
understand?    A.    They  are. 

Q.  Take  the  Gulf,  Colorado  &  Santa  Fe,  that  is  still  a 
corporation,  possibly  a  Texas  corporation,  I  do  not  know?  A. 
Yes,  it  is. 

Q.  The  stock  and  bonds  of  that  company  were  acquired 
in  toto  by  your  company  and  are  now  in  the  treasury  pledged 
with  other  property  for  certain  bond  issues  of  your  company? 
A.     Correct. 

Q.  Was  there  a  corresponding  issue  of  stock  and  bonds  of 
the  Atchison,  Topeka  &  Santa  Fe  to  correspond  with  the 
amount  of  stock  and  bonds  acquired  when  they  purchased 
those  of  the  Gulf  road,  or  was  there  more  or  less?     A.     I 


134 

cannot  answer  that  question.  It  was  long  before  the  existence 
of  the  present  company. 

Q.  Then  you  do  not  know,  but  you  do  know  the  property, 
of  course?    A.    Yes. 

Q.  And  you  do  know  the  capitalization  of  that  company 
is  represented  by  stock  and  bonds  of  the  Gulf  Company  now  in 
the  treasury  of  the  Santa  Fel    A.    Substantially,  yes. 

Q.  Does  that  fairly  represent  in  your  judgment  the  actual 
jDhysical  worth  for  which  those  stocks  and  bonds  for  that  cap- 
italization stand?    A.    I  cannot  answer  that  question. 

Q.  All  right.  A.  I  do  not  recall  now  what  the  capitaliza- 
tion of  the  Gulf,  Colorado  &  Santa  Fe  is,  taken  as  a  whole. 

Q.  But  the  books  of  your  company,  and  the  disclosures 
of  the  contents  of  your  treasury  would  show  what  that  is? 
A.     Correct. 

Q.  Of  course  there  is  a  separate  account  kept  of  the  gross 
and  net  earnings  of  the  Gulf  Line?    A.    Yes. 

Q.  And  by  taking  the  capitalization  of  the  Gulf  Line  as 
represented  by  the  stocks  and  bonds  of  that  company  now  in 
your  company's  treasury,  and  making  application  thereto  of 
the  net  gross  earnings,  you  could  arrive  at  what  the  results  to 
the  capitalization  of  that  line  of  its  earnings  were?  A.  Very 
easily. 

Q.  Be  good  enough  to  direct  Mr.  Bailey,  if  he  is  the  gen- 
tleman to  direct,  to  give  us  those  figures  so  that  that  com- 
putation can  be  made?    A.    We  will  furnish  it. 

Q.  What  I  have  said  with  relation  to  that  I  would,  with- 
out multiplying  words,  ask  you  to  do  with  relation  to  each 
of  the  other  lines,  subsidiary  lines,  if  that  is  the  proper 
phrase.  A.  We  cannot  do  that  with  many  of  those  lines  be- 
cause they  are  leased  and  included  in  the  operations  of  the 
Santa  Fe  proper.  They  are  leased  outright  and  no  separate 
account  is  kept  of  their  earnings  and  expenses? 

Q.  What  roads?  A.  Practically  all  except  the  Gulf,  Colo- 
rado &  Santa  Fe,  they  are  all  included  in  the  report. 

Q.  They  are  operated  by  the  Santa  Fe  Road  proper?  A. 
They  are. 

Q.  Has  their  corporate  identity  been  liquidated,  have  they 
gone  into  liquidation?     A.     No. 

Q.  Does  the  corporation  of  the  Pecos  &  Northern  Texas 
still  exist?  A.  That  does,  and  we  continue  the  figures  for 
the  Pecos  &  Northern  Texas. 

Q.  That  is  as  to  two  of  them.  Take  the  Rio  Grande — 
well,  that  is  too  small  to  bother  with.     The  Eastern  Railway 


135 

of  Xew  Mexico?     A.     That  is  lecised  to  the  Atchison  Com- 
pany. 

Q.  That  is  leased  to  the  Atchison  Company  and  the  amount 
of  money  expended  upon  that  appears  in  your  rental  column? 
A.    No,  not  in  our  rental  column, 

Q.  If  5^ou  lease  you  do  not  pay  rent?  A.  Yes,  but  we 
rent  by  assuming  its  liabilities. 

Q.  What  is  the  contract  of  lease  then?  That  you  are 
to  pay  anything  to  the  stockholders  of  the  Eastern  Railway 
of  New  Mexico?  A.  There  are  no  stockholders  except  the 
Santa  Fe  Eailroad.  Its  interest  charges  are  paid  by  the 
Santa  ^e  Railroad,  that  is  the  lease. 

Q.  At  the  time  of  the  acquisition  of  the  Eastern  Railway 
of  New  Mexico  it  was  acquired  by  the  Santa  Fe  by  the  pur- 
chase of  the  entire  capital  stock  of  that  railroad?  A.  Yes, 
sir. 

Q.  Then  the  Santa  Fe  became  the  owner  of  the  stock  which 
represented  the  road?     A.     Yes. 

Q.  It  was  thus  obliged  to  assume  the  obligations  of  the 
road  and  did  so,  and  what  you  call  a  contract  of  lease  is 
simply  an  obligation  on  the  part  of  the  Santa  Fe  to  pay  the 
fixed  charges  resulting  from  the  bonded  indebtedness  of  the 
Eastern  Railway  Company  of  New  Mexico?    A.    Quite  right. 

Mr.  Lyon,  Just  there,  to  make  that  clear,  that  was  pur- 
chased by  stock  of  the  Atchison  Company?    A.    No,  sir. 

Q.  What  was  it  purchased  with?  A.  It  was  purchased 
with  cash  obtained  from  the  sale  of  bonds. 

Mr.  Atwood.  The  sale  of  bonds  of  the  Santa  Fe  Company? 
A.    Yes. 

Q.  When  I  speak  of  that  in  that  way,  without  the  attach- 
ment of  the  word  system,  I  mean  simply  the  corporation 
proper.  A.  I  would  like  to  amend  that  a  little.  It  was  orig- 
inally purchased  with  cash,  in  fact  it  was  built  by  another 
corporation  and  it  was  practically  built  by  the  Santa  Fe  Com^- 
pany,  and  the  bonds  were  issued  as  bonds  of  the  Eastern 
Railway  of  New  Mexico,  but  with  the  Santa  Fe  guarantee  at- 
tached to  them. 

Q.  What  is  the  total  bonded  indebtedness?  A.  Practically 
it  was  a  Santa  Fe  bond,  and  is  included  in  part  of  our  bonded 
obligation. 

Q,  How  are  those  bonds  you  are  just  speaking  of  denom- 
inated, Santa  Fe  bonds  or  Eastern  Railway  of  New  Mexico 
bonds?     A.     Eastern  Railway  of  New  Mexico  bonds. 

Q.     There  is  a  series  of  bonds  known  as  that?    A.    Yes. 


136 

Q.  What  is  the  total  of  that  approximately?  I  know  you 
cannot  give  exact  figures!  A.  I  think  it  is  $17,000,000.  Is 
that  right,  Mr.  Bailey? 

Mr.  Bailey.     Yes. 

Mr.  Atwood.  $17,000,000,  so  that  the  rental  you  pay  on  the 
Eastern  Eailway  of  New  Mexico  is  represented  by  the  inter- 
est paid  on  the  $17,000,000  of  bonds?    A.    Yes. 

Q.    What  rate  do  those  bonds  carry?    A.    Four  per  cent. 

Q.  Well,  they  appear  in  the  report  which  you  will  make, 
Mr.  Auditor?     A.     Yes,  they  are  all  there. 

Q.  Now,  then,  you  have  a  separate  account  of  the  net 
gross  earnings  and  expenses  on  the  Eastern  Railway  of  New 
Mexico?    A.     No. 

Q.  There  is  no  separate  account  kept  of  that  at  all?  A. 
No. 

Q.  That  is  carried  in  the  other  accounts  of  the  Santa  Fe? 
A.     Yes. 

Q.  There  are  no  means  you  have  by  which  you  can  deter- 
mine whether  or  not  it  is  a  profitable  venture  or  otherwise,  for 
you  to  pay  the  interest  on  that  $17,000,000  of  bonds  and 
run  the  road?    A.    No. 

Q.  You  do  not  know  whether  you  win  or  lose  on  that 
proposition?     A.     No. 

Q.  Is  that  true  of  any  of  your  other  railroad  appendages 
that  you  are  so  situated  with  reference  to  them  that  you  do 
not  know  whether  you  make  or  lose  on  them?    A.    Yes. 

Q.  Name  those  in  which  you  are  thus  unliappily  situated? 
A.    I  think  probably  all  of  them. 

Q.  Take  up  the  Pecos  &  Northern  Texas,  151  miles?  A. 
I  have  already  stated  that  is  operated  as  a  separate  com- 
pany. 

Q.  Yes,  I  think  you  did.  And  what  is  true  of  the  North- 
em  Company  would  also  be  true  of  that  as  to  the  possibilities 
of  computation?    A.    Yes. 

Q.  Now,  then,  the  Santa  Fe,  Prescott  &  Phoenix,  257  miles. 
How  is  that  held  and  operated  by  the  Santa  Fe,  if  at  all? 
A.  The  Santa  Fe  bought  the  second  mortgage  bonds  and 
the  stock.  The  first  mortgage  bonds  are  still  in  the  hands  of 
the  public  and  it  is  operated  under  a  separate  management, 
but  its  earnings  and  expenses  are  included  in  our  general 
statement. 

Q.  Is  there  a  separate  account  in  the  bookkeeping  de- 
partment, of  the  result  of  the  operation  of  that  line?  A. 
Yes,  there  is. 


137 

Q.  So  you  cau  tell  by  finding  out  how  mucli  you  made  from 
it  and  by  finding  out  how  much  you  pay  for  it,  whether  you 
win  or  lose?    A.     Yes. 

Q.     That  will  be  furnished  by  your  auditor?     A.     Yes. 

Q.  I  would  like  to  have  it.  The  Southern  Kansas  Rail- 
road Company  of  Texas,  what  about  that?  A.  That  is  oper- 
ated separately. 

Q.  And  what  is  true  of  the  Gulf  Road  is  also  true  of 
that?    A.    Yes. 

Q.  And  also  true  of  the  figures  that  will  be  furnished? 
A.    Yes. 

Q.  Now,  the  Santa  Fe  have  acquired  these  properties,  we 
will  take  for  example  this  last  one,  by  the  issue  of  stock  bonds 
directed  to  those  from  whom  the  stock  was  acquired?  A. 
No,  because  in  almost  all  cases  the  Santa  Fe,  as  I  have  al- 
ready said,  was  the  original  party  that  owned  the  road,  and 
the  party  that  built  the  road  practically.  We  built  all  these 
other  roads,  and  because  of  state  laws  and  for  other  reasons, 
we  built  them  under  the  name  of  separate  corporations,  and 
when  they  were  finished,  they  were  leased  to  the  Santa  Fe. 

Q.  What  part  of  the  total  capitalization  of  the  Santa  Fe 
Railway  Company  is  represented  by  the  physical  property 
of  the  Southern  Kansas  Railway  Company  of  Texas  ?  A.  We 
can  give  you  that  information,  if  you  want  it. 

Q.    All  right.    Will  you  do  that?     A.    Yes. 

Q,  Now,  I  would  ask  the  same  information  with  regard 
to  each  of  the  subsidiary  lines?  A.  We  will  give  you  that; 
I  think  we  can  give  it  to  you. 

Q.  Of  course,  I  know  it  cannot  be  done  in  a  minute.  Your 
asurance  that  it  will  be  done  is  enough  for  us.  A.  You 
can  give  it  as  to  most  of  them,  can't  you,  Mr.  Bailey? 

Mr.  Bailey.  Yes,  for  those  properties  that  were  purchased 
since  January  1,  1896. 

Mr,  Atwood.  Won't  vou  take  us  into  your  confidence,  Mr. 
Bailey? 

Mr.  Bailey.  I  say  those  properties  which  were  purchased 
since  January  1,  1896,  we  know  what  the  cost  of  them  was 
on  our  books,  and  the  other  properties  that  formed  a  part  of 
the  Southern  Kansas,  before  the  organization  of  this  com- 
pany, there  is  no  way  of  telling  the  cost  of  that  company. 

Mr.  Atwood.  Well,  I  will  trouble  about  that  when  the  time 
comes. 

Mr.  Ripley.  There  are  very  few  of  those  properties.  I 
supposed  you  were  referring  to  what  has  been  done  since  the 


138 

present  company  has  been  in  existence.  Of  course,  we  can- 
not tell  as  to  some  of  these  companies  what  the  old  companies 
paid  for  them,  what  part  of  the  capitalization  of  that  com- 
pany they  represent,  because  we  bought  the  whole  thing  in 
gross. 

Q.  I  understand.  A.  But  since  this  corporation  was  or- 
ganized we  can  give  you  all  that  information. 

Q.  And  there  is  in  the  treasury  of  Santa  Fe,  stock  and 
bonds,  property  described  as  Gulf  stock  and  bonds  and  East- 
ern Kailroad  stocks  and  bonds,  and  so  on!    A.    Yes. 

Q.  And  by  ascertaining  the  quantum  of  them  we  have 
at  least  one  measure  of  value  as  to  what  the  proper  capitali- 
zation is,  and  that  is  what  we  want  to  know  that  for. 

Operating  Expenses  and  Betterments. 

Will  you  have  your  accountant  furnish  a  report  or  state- 
ment showing  the  amount  applied  to  betterments  and  im- 
provements and  charged  to  operating  expenses  for  each  year 
from  1896  to  1910  inclusive?    A.    Why,  no. 

Q.  Bo  I  make  clear  the  purpose  of  my  request?  A.  Yes, 
but  there  are  no  such  figures  extant,  and  there  is  no  such  item. 

Q.  Take  for  example  the  year  1909 —  A.  We  have 
charged  a  good  deal  of  it  to  income  but  not  to  operating 
expenses.    That  is  the  distinction. 

Q.  Well,  just  for  illustration's  sake,  did  you  state  how  the 
$700,000  on  the  tunnel  was  charged,  was  it  charged  to  income 
or  opertaing  exiDenses?  A.  That  is  charged  to  operating- 
expenses. 

Q.  Your  report  of  1909  shows  an  expenditure  during  that 
year  of  $400,000,000  during  the  year  for  what  you  are  pleased 
to  call  additions  and  betterments?    A.    Yes. 

Q.  When  that  expenditure  was  made  to  what  account  was 
it  charged?  A.  Charged  to  various  accounts.  Charged  pri- 
marily to  additions  and  betterments  and  taken  out  of  income, 
as  you  will  see  by  the  report. 

Q.     And  was  not  charged  to  operating  expenses? 

Mr.  Bailey.    No. 

Mr.  Atwood.  Here  is  the  reserve  fund  for  future  expen- 
ditures, for  additions  and  betterments  that  vou  had  at  the 
end  of  the  fiscal  year  1909,  amounting  to  $5,000,000?    A.     Yes. 

Q.    Has  that  been  expended  during  the  year  1910?    A.    Yes. 

Q.  Was  thait  charged  to  income  or  operating  expense?  A. 
Income. 


139 

Q.  No^v,  if  I  understand  you,  or  I  will  put  it  in  the  way 
of  a  query,  where  things  in  the  nature  of  betterments,  like 
the  substitution  of  a  concrete  lining  for  a  timber  lining  to 
a  tunnel  occasioned  expenditure,  was  it  the  policy  of  your 
company  to  charge  such  expenditure  to  betterments  or  to  oper- 
ating expense?  A.  Well,  a  thing  of  that  kind  ought  to  be 
charged  to  operating  expense  and  had  been  generally,  but 
not  always. 

Q.  Have  your  employes  a  method  of  bookkeeping  that 
enables  you  to  now  say  what  proportion  of  the  sums  of  money 
that  were  actually  employed  in  the  preservation  of  ways  and 
structures  was  charged  to  operating  expenses  when  it  was 
employed  in  the  creation  of  a  betterment  of  the  character  of 
which  I  have  spoken?  A.  No,  there  is  nothing  that  will  show 
that.  There  are  a  very  large  number  of  instances,  as  I  said 
yesterday,  which  are  on  the  border  line  between  improvement 
and  betterment,  and  we  have  to  some  extent  charged  those 
up  according  to  our  ability  to  pay.  If  we  felt  we  were  pay- 
ing pretty  well  we  would  charge  it  up  to  operating  expenses. 

For  instance,  when  we  rebuild  a  line  of  railroad  and 
straighten  it  out  and  abandon,  as  we  have  done  in  some  cases, 
forty  or  fifty  or  sixty  miles  of  old  line,  the  cost  of  the 
abandoned  property  is  a  proper  charge  to  operating  expenses. 
We  have  not  always  been  able  to  charge  it  to  operating 
expenses ;  sometimes  we  pro  rated  that  over  a  series  of  years. 
But  if  we  were  able  we  charged  it  straight  to  operating  ex- 
penses, where  it  belonged. 

Q.  Have  you  in  mind  a  thing  that  is  a  concrete  applica- 
tion of  the  illustration  you  have  just  employed,  the  abandon- 
ment of  a  road?    A.    Yes. 

Q.  Your  books  would  show  what  was  done  with  that?  A. 
I  have  told  you  what  was  done  with  that. 

Q.  Is  there  more  than  one  instance  of  that  particular  thing? 
A.    A  great  many. 

Q.  And  your  books  would  show  what  proportion  of  such 
loss — if  loss  is  the  right  word — ^was  charged  to  operating 
expenses  and  what  not?     A.     Yes. 

Q.  Now,  then,  I  will  make  this  request,  if  you  will  be  so 
good  as  to  comply  with  it,  to  have  your  accounting  department 
supply  us  and  the  representatives  of  the  Commission,  with 
figures,  so  far  as  your  books  make  it  possible,  disclosing  what 
sums  have  been  charged  to  operating  expenses  that  actually 
went  either  for  a  substitution  of  abandonments,  of  things  such 
as  you  have  just  mentioned,  or  for  the  building  and  construe- 


140 

tion  of  what  is  recognized  as  betterments  and  improvements? 
A.  I  doubt  if  it  would  be  possible  to  dig  that  information 
out  of  the  books  for  fifteen  years. 

Q.  Well,  the  last  five?  A.  Well,  I  think  it  would  be  doubt- 
ful if  we  could  do  it  for  the  last  five.  We  could  take  some 
large  item,  perhaps,  like  the  abandonment  of  a  line,  and 
we  could  tell  you  how  much  we  have  charged  up  for  that,  I 
suppose,  by  going  all  over  the  books ;  but  to  go  over  the  multi- 
tude of  transactions  and  entries  on  each  one  and  pass  on  it 
as  to  which  might  be  a  doubtful  proposition,  as  to  whether 
it  should  be  a  betterment  or  ordinary  operating  expense, 
would  be  a  Herculean  job.  I  don't  believe  we  are  prepared 
to  do  that. 

Mr.  Bailey.  It  would  take  about  fifteen  years  to  furnish 
one  year. 

Mr.  Atwood.    Cutting  out  all  but  the  last  five  years. 

Mr.  Bailey.  I  would  want  at  least  fifteen  years  to  do  that. 
I  would  want  about  fifteen  years  to  do  that.  We  would  have 
to  examine  every  distribution  account  over  10,000  miles  of 
railway. 

Mr.  EiPLEY.    We  would  have  to  go  through  every  little  item. 

Mr.  Atwood.  Can  you  make  a  computation  that  would  show 
expenditures  of  this  nature  that  were  charged  to  operating 
account,  that  are  in  excess  of  $5,000,  each  item  in  excess  of 
that  amount? 

Mr.  EiPLEY.  I  don't  think  so.  For  the  last  two  years 
we  have  modified  our  methods  by  order  of  the  Commission 
and  the  books  have  been  kept  in  accordance  with  the  Commis- 
sion's orders,  and  have  been  examined  and  passed  upon,  and 
I  do  not  think  we  would  go  back  and  readjust  on  any  other 
basis  than  that  which  we  have  used. 

Q.  Of  course,  as  far  as  it  could  be  possible  to  be  done, 
you  are  entirely  content  to  have  Mr.  Bailey  or  any  other 
person  able  to  do  it,  to  do  so?  A.  Yes,  I  have  nothing  to 
conceal  about  it  at  all. 

Old  Time  Dividends. 

Q.  Have  you  any  knowledge  of  the  stock  dividend  of  the 
old  company,  declared  in  1881?  A.  I  know  there  was  a  stock 
dividend. 

Q.  Do  you  know  the  amount  of  it?  A.  I  do  not.  I  know 
that  for  many  years  prior  to  that  thev  had  had  no  dividend 
at  all. 

Q.    Do  you  know  what  disposition  was  made  of  the  $15,692,- 


141 

100  stock  dividend  that  was  distributed  among  the  stockhold- 
ers in  1881  under  the  reorganization  scheme?    A.    No. 

Q.    'What  was  done  with  that  stock?    A.    I  do  not  know. 

Q.  Has — how  was  it  taken  care  of,  or  don't  you  know? 
A.    I  don't  recall  prior  to  that  time.    I  don't  know. 

Q.  So  that  treated,  so  far  as  you  know,  with  the  balance 
of  the  capital  stock  outstanding  with  the  old  company  at  the 
time  of  the  reorganization?    A.    I  don't  know. 

Q.  Do  you  know  what  disposition  was  made  toward  the 
taking  in  of  the  old  stock  as  an  entirety,  or  the  provision  made 
for  it  under  the  reorganization  scheme?  A.  Under  the  reor- 
ganization? 

Q.  Yes.  A.  I  think  it  was  all  taken  in.  It  was  all  as- 
sessed. 

In  Seaech  for  ''Watee." 

Q.  So  if  there  had  been  fifteen  millions  of  water  or  stock 
dividend  in  the  stock,  and  it  was  all  taken  care  of,  the  water 
was  still  there?    A.     I  should  not  call  it  water. 

A.  All  right,  we  will  call  it  HoO?  that  would  be  the  chem- 
ical name  for  it. 

Mr.  NoETOx.  I  thought  you  were  going  to  keep  out  of  science. 
Didn't  you  promise  us  to  keep  out  of  science? 

Mr.  Atwood.  I  will  say  this,  since  it  is  impossible  in  a 
minute  to  go  over  this  account  so  as  to  ask  the  questions, 
that  for  the  sake  of  saving  time  I  will  stop  the  questioning 
now  and  ask  the  privilege  of  putting  these  questions  later 
when  we  get  these  things  arranged. 

Mr.  Brow:^.  It  is  quite  possible  that  the  accountant  may  be 
able  to  answer  the  questions  you  desire  answered. 

Mr.  Atwood.    That  is  quite  true. 

Mr.  Lyon.  I  was  going  to  ask  Mr.  Eipley  a  question  which 
I  think  probably  Mr.  Bailey  can  explain  better  than  Mr.  Kip- 
ley,  so  I  will  defer  the  question. 

Examiner  Brown.  Of  course  if  he  can  not  answer  it,  Mr. 
Ripley  will  return  for  that  purpose. 

Mr!^  Norton.  In  answer  to  the  HoO,  Mr.  Eipley,  you  have 
shown  in  your  direct  examination  that  you  have  charged  off 
about  twenty-three  million  dollars  at  one  time,  and  how  much 
at  another? 

Examiner  Brown.  About  forty-one  million  dollars  alto- 
gether, I  think  it  was. 

Mr.  Norton.    Yes.    That  is  all. 


142 

Mr.  Lyon.  I  want  so  say  at  tins  stage,  that  I  shall  ask  the 
statement  from  the  different  carriers,  and  as  to  the  Santa  Fe 
I  thought  I  would  state  it  at  this  time,  a  statement  showing 
just  what  effect  the  proposed  increase  in  rates  would  have 
upon  the  revenues  of  the  Santa  Fe  Company  for  a  given  period 
of  time. 

Examiner  Brown.  This  is,  an  approximate  estimate  of  what 
the  increase  will  yield? 

Mr.  Lyon.  The  eastern  roads  are  preparing  statements  now 
that  I  understand  are  not  approximate ;  they  are  exact.  They 
are  taking  the  revenues  earned  for  say  two  months  of  the 
year  under  existing  rates  and  applying  to  those  shipments  the 
rates  proposed  to  be  put  into  effect  on  November  1st,  so  that 
the  Commission  may  have  an  idea  of  what  the  difference  will 
be  in  the  course  of  a  year.  Mr.  Eipley  has  said  in  his  state- 
ment that  it  only  amounts  to  about  $150,000.  We  would  like 
to  have  exact  information  on  that. 

Mr.  Ripley.    For  what  time? 

Mr.  Lyon.  The  time  will  be  designated  later ;  one  month  or 
two  months. 

Mr.  Norton.    We  have  that  now  for  a  stated  time. 

Mr.  Lyon.    Yes. 

Mr.  Norton.  I  understand  the  eastern  roads  are  making  ap- 
proximations also  of  a  certain  six  days  here  and  there. 

Mr.  Lyon.  Whatever  is  a  fair  and  reasonable  proposition; 
the  Commission  simply  wants  to  know  what  is  being  done. 

Mr.  Norton.    Yes. 

Mr.  Lyon.  And  also  an  exact  statement,  so  far  as  you  can 
make  it,  of  the  increase  in  the  wages  of  the  labor  account 
under  the  alleged  advance.  I  do  not  mean  the  advances  that 
have  been  alleged  here,  but  what  has  been  in  the  press,  and 
the  proposition  that  the  rates  have  been  advanced  on  that 
basis.  But  I  think  we  will  call  for  those  in  writing  from  Wash- 
ington, and  prepare  the  proper  data  from  them. 

j\Ir.  Norton.  I  think  we  have  most  of  that  now  for  the  Santa 
Fe. 


143 


SOME   OBSERVATIONS  BY  THE  PBESS. 

Traflac  World  and  Traffic  Bulletin,  September  3: 

"Our  books  are  open. 

"This  was  the  prompt  answer  made  by  the  Santa  Fe  in  denial  of  the  despatch 
from  Washington  Thursdaj^,  purporting  to  be  based  on  information  emanat- 
ing from  the  Commission  and  charging  that  the  figures  put  in  evidence  by  the 
Santa  Fe  in  the  present  hearing  lead  to  a  manifest  incorrect  impression  and 
were  also  believed  to  have  been  manipulated. 

"Attorney  Norton,  for  the  road,  insisted  on  reading  into  the  record,  Thurs- 
day afternoon,  over  the  protest  of  Attorney  Lyon  for  the  Commission,  a  state- 
ment authorized  by  President  Ripley  denying  the  insinuation  published  in  a 
morning  paper  and  offering  to  throw  open  the  books  of  the  company  to  either 
shippers  or  commissioners  and  render  all  the  aid  possible,  even  to  detailing 
emploj'es  to  assist  in  the  work  of  examination,  in  order  that  there  might  be 
no  doubt  as  to  the  accuracy  of  the  Santa  Fe's  exhibits  and  the  honestj^  of  its 
course.  Mr.  Lyon  demurred  against  having  the  protest  spread  upon  the  records 
of  the  case,  because  he  felt  it  was  an  uncalled  for  reflection  on  the  Commission, 
but  he  was  overruled  by  Chief  Examiner  Brown. 

Mr.   Norton's  statement  follows : 

'In  view  of  a  dispatch  from  Washington  appearing  to-day  purporting  to 
be  based  upon  information  emanating  from  the  Interstate  Commerce  Com- 
mission and  charging  that  the  figures  put  in  evidence  by  The  Atchison, 
Topeka  &  Santa  Fe  Railway  Company  lead  to  a  manifest  incorrect  im- 
pression, and  also  that  it  is  believed  they  have  been  manipulated,  I  am 
authorized  by  President  Ripley  to  state  that  the  accounts  and  records  of 
the  Railway  Company  are  kept  upon  forms  prescribed  by  the  Interstate 
Commerce  Commission  and  that  they  are  absolutely  correct.  In  addition  to 
following  the  requirements  of  the  Government  in  this  respect  the  Railway 
Company  has  its  accounts  examined  every  year  by  independent  auditors, 
those  auditors  being  now  engaged  upon  this  work,  which  they  began  about 
30  daj's  ago.  What  this  independent  examination  of  the  accounts  of  the 
Railway  Company  does  is  shown  by  the  following  certificate  of  the  inde- 
pendent auditors  on  pages  26  and  27  of  the  annual  report  of  1909,  a  copy 
of  w^hich  went  to  the  Interstate  Commerce  Commission,  at  the  foot  of  the 
general  balance  sheet  for  the  year  ending  June  30: 

We  have  examined  the  books  and  accounts  of  The  Atchison,  Topeka 
&  Santa  Fe  Railway  and  System  lines,  and  certify  that  the  above 
balance  sheet  and  relative  income  and  profit  and  loss  accounts  are  prop- 
erly drawn  up  therefrom,  and  show  the  correct  income  of  the  company's 
system  for  the  year  and  the  true  financial  condition  at  the  close  of  the 
year.  We  have  been  provided  with  satisfactory  certificates  from  the 
trustees  as  to  the  securities  pledged  under  the  different  mortgages,  and 
we  have  also  verified  the  cash  items. 

Price,  Waterhouse  &  Co.,  Auditors. 
New  York,  September  S,  1909. 
"Because  the  statements  which  have  been  sent  out  from  Washington  as 
proceeding  from  the  Interstate  Commerce  Commission  since  the  contest  over 
these  tariffs  began  have  been  uniformly  misleading,  narrow  and  unfair 
to  the  carriers,  we  take  this  opportunity  of  saying  that  if  either  the  Inter- 
state Commerce  Commissioners  or  the  shippers  have  any  doubt  respecting 
the  accuracy  of  Santa  Fe  records  or  accounts,  or  of  the  honesty  of  the  com- 
pany's course,  we  hereby  tender  to  them  the  opportunity  of  making  per- 
sonal inspection  of  our  books,  and  we  also  offer  to  put  at  their  disposal 
all  the  employes  that  they  may  need  and  render  to  them  every  other  assist- 
ance in  our  power  to  aid  in  making,  for  the  record  in  this  case,  a  thorough 
investigation." ' 


144 

Following  the  foregoing  statement  by  the  Santa  Fe  Company  Commissioner 
Prouty,  who  was  m  Chicago  on  September  2,  after  disavowing  any  intention  of 
the  Commissioners  or  their  assistants  to  discredit  the  good  faith  of  the  rail- 
roads, made  tliis  statement  in  the  Chicago  papers  of  September  3: 

"There  is  absohitely  no  suspicion  in  my  mind  or,  as  far  as  I  know,  in 
the  minds  of  any  of  the  commissioners,  that  the  accounts  of  the  railroads 
have  been  padded  or  juggled  in  any  way." 

Chicago  Tribune,  September  1,  1910: 

"Capital  invested  in  a  public  service  corporation  is  entitled  to  a  reasonable 
profit.  *  *  *  But  the  fact  must  not  be  overlooked  that  if  railroad  investments 
were  much  less  profitable  than  average  investments  year  in  and  year  out 
throughout  the  country,  capital  would  keep  out  of  railroads.  That  would  be  a 
national  misfortune.  For  the  country  is  growing  and  the  roads  have  to  grow 
to  keep  up.  Traffic  swells  and  new  tracks,  new  rolling  stock,  and  larger  terminals 
and  depots  have  to  be  provided.  The  construction  expenditures  of  an  American 
railroad  never  will  end.     *    *    *" 

Chicago  Record-Herald,  August  31: 

"The  railroads  are  not  as  safe  and  modern  as  they  should  be,  and  without 
more  income  the  demands  for  track  elevation,  new  stations,  more  comfort, 
greater  safety  cannot  be  met.    *    *    *" 

Chicago  Tribune,  August  31 : 

"The  argument  made  by  President  Ripley  of  the  Santa  Fe  for  higher  rates 
for  his  road  is  temperate  and  clear.  It  has  the  earmarks  of  sincerity.  The 
shippers,  while  disputing  his  contention  that  higher  rates  are  necessary  or 
expedient,  will  concur  in  much  of  what  he  says.  They  will  agree  that  the 
Santa  Fe  will  have  to  put  a  good  deal  of  money  into  betterments  and  that  most 
of  the  money  should  come  out  of  earnings',  instead  of  being  obtained  through 
stock  and  bond  issues.  We  should  all  admit  the  soundness  of  Mr.  Ripley's 
reasoning  on  this  point.  The  capitalization  of  a  road  should  not  be  increased 
because  of  track  elevation  or  the  construction  of  a  costly  depot.     *     *    *" 

Chicago  Evening  Post,  August  31: 

"New  light  upon  the  question  of  why  the  business  of  the  country  in  many 
highly  important  lines  has  suflfered  depression — the  result  of  curtailed  con- 
sumption— was  afforded  to-day  at  the  Interstate  Commerce  Commission  investi- 
gation of  the  proposed  freight  rate  advance. 

At  the  hearing  in  the  Federal  Building  the  records  of  the  Santa  Fe  Railroad 
governing  improvements,  present  and  prospective,  were  thrown  open  to  the 
examiners.  These  showed  that  during  the  last  year  $10,750,740  was  stricken 
from  the  budget  of  this  single  line,  representing  rail  laying,  station  building, 
bridge  construction  and  similar  undertakings  which  the  directors  decided  should 
be  done  but  for  whch  there  was:  no  money  available. 

As  it  originally  stood,  the  testimony  showed,  the  budget  called  for  the  ex- 
penditure of  $30,000,000.  At  the  suggestion  of  the  officers  of  the  road  the 
directorate  trimmed  this  amount  to  $19,000,000.  But  of  the  $19,000,000  ap- 
proved $10,000,000  of  the  work  proposed  was  unaccomplished. 

Previous  budgets,  it  appeared,  had  suffered  in  similar  fashion.  In  1908  $16,- 
793,924  was  approved,  but  only  $8,180,572  appropriated.  In  1909  $12,299,881  was 
the  prospective  expenditure  sanctioned  by  the  directors,  but  $9,583,000  was  the 
amount  paid  out  for  improvements.     *     *     *" 


I 


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